Exchange Traded Funds (ETFs)
Invest in tradeable Exchange Traded Funds and grow your wealth with a passive investment strategy.
- Average returns - Dynamic
- Number of funds - (Static)
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What are Exchange Traded funds?
An Exchange Traded Fund (ETF) is a mutual fund scheme which is listed and traded on the stock exchange. Its portfolio tracks an index, a collection of stocks, bonds or a commodity.
Advantages of Exchange Traded Funds
Passive investment
Usually ETFs track a particular index or a commodity, they do not rely on fund managers’ expertise for generating returns.
Versatile
There are different types of Exchange Traded Funds available in the market allowing you to choose onle that matches your needs.
Cost-effective
Being passively managed, ETFs have low expense ratios. This converts to higher NAVs which can deliver higher returns over the investment tenure.
High Liquidity
Traded on stock exchanges, allowing investors to buy and sell units throughout the trading day at market prices.
Types of debt funds
Funds Based On Duration
Large-cap Funds
Invest in the top 100 stocks
Midcap Funds
Portfolio of fast-growing companies
Small-cap Funds
Invest in companies with the highest growth potential
Multicap Funds
Multicap Funds
Large and Midcap Funds
Portfolio comprising large and mid-cap stocks
Medium Duration Fund
Maturity of bonds in between 3-4 years
Tax-Saving Funds
Equity Linked Saving Scheme (ELSS)
Tax-saving scheme under Section 80C
Sectoral Funds
Invest in different sectors
Thematic Funds
Invest in various stocks across industries tied by a common theme
Funds Based On Portfolio Allocation
Value funds
Follow the strategy of value investing
Dividend Yield Funds
Invest in stocks that consistently yield dividends
Focused Funds
A portfolio of select stocks
Funds Based On Duration
Overnight Fund
Securities mature in a day
Liquid Fund
Maximum maturity of securities is 91 days
Ultra Short Duration Fund
Bonds matures between 3 and 6 months
Money-Market Fund
Investment in money market securities with an investment tenure up to 1 year
Short Duration Fund
Macaulay duration of the fund ranges from 1-3 years
Medium Duration Fund
Maturity of bonds in between 3-4 years
Medium to Long Duration Fund
Maturity of bonds ranges from 4-7 years
Dynamic Bond Fund
Portfolio invests in securities across durations
Funds Based On Portfolio Allocation
Corporate Bond Fund
Portfolio invests primarily in corporate bonds
Credit Risk Fund
Investment in securities with the second highest credit rating
Banking and PSU Fund
Debt instruments issued by banks and PSUs
Gilt Fund
Investment in government securities
Gilt Fund with 10 year Constant Duration
Investment in government securities with Macaulay duration (weighted average time that a bond needs to be held for so that the total present value received is equal to the current market price) of 10 years
Floater Fund
Investment in floating rate instruments (instruments with interest rate that fluctuates with respect to a benchmark rate)
Equity-Oriented Fund
Aggressive Hybrid Fund
Maximum equity investment between 65% and 80%
Maximum equity
Investment between 65% and 80%
Arbitrage Fund
Invests in arbitrage opportunities
Equity Savings Fund
Investment in equity, debt and arbitrage
Dynamic Allocation Fund
Balanced Hybrid Fund
40% to 60% debt exposure
Multi-Asset Allocation Fund
Allocation in three different asset classes
Children's Fund
Lock-in of 5 years or till the child becomes an adult
Retirement Fund
Lock-in period of 5 years or till you retire
Understanding Exchange Traded Funds
What are Exchange Traded Funds?
Different from other mutual funds, Exchange Traded Funds are schemes which are traded on the stock market. They invest in an underlying index or a commodity and help you earn returns equal to the benchmark index or commodity. You will need a trading/ demat account to buy or sell ETFs.
What are the features of Exchange Traded Funds?
- Prices fluctuate constantly as ETFs are traded on the stock market
- Different types of ETFs for different investors
- Passively managed funds with a low expense ratio
- ETFs can invest in particular indices, sectors and commodities
- International ETFs are also available that invest in international markets
What should you know before investing in Children’s Funds?
- There’s a lock-in period which restricts liquidity in the initial investment years
- You can choose from hybrid or equity-oriented funds based on your risk profile
- If you invest in equity-oriented funds, invest with a long-term view to ride out short-term volatility.
- Hybrid funds add the stability of debt and lower volatility risks
- The returns depend on the underlying assets and benchmark index
What are the different types of Exchange Traded Funds?
- Equity-oriented ETFs
They invest in equity-oriented indices.
- Sectoral or thematic ETFs
They invest in indices of a particular sector.
- Commodity ETFs
They invest in different types of commodities like gold, silver. etc.
- International ETFs
They invest in international indices.
- Inverse ETFs
ETFs which aim to deliver the opposite return of the underlying index.
- Leveraged ETFs
They invest in debt and debt-oriented derivatives.
- Debt ETFs
They invest primarily in debt instruments and indices.
Who should invest in Exchange Traded Funds?
- New investors who want to invest in a particular index or commodity.
- Investors looking to invest in low-cost schemes.
- Investors who want portfolio diversification .
- Investors looking for tradeable investments which can be easily liquidated.
What is the tax implication of index funds?
- Equity-oriented funds
- Returns up to Rs.1 lakh are tax-free
- Returns exceeding Rs.1 lakh are taxed at 10%
- Debt-oriented funds
- Returns earned are taxed at income tax slab rates
- Dividend income is taxed at your income tax slab rates
What are some of the things to consider when investing in Exchange Traded Funds?
- Check the past performance and choose a fund which has offered consistent returns.
- Know the trading volume of the ETF to assess its demand.
- Though it is low, check the expense ratio of the fund.
- There will be a tracking error and the returns might not be equal to those of the underlying index or commodity.
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