Should you invest in ETFs in India?

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Should you invest in ETFs in India?

An ETF is not a worthwhile investment just because it is passive and low cost. Returns, how the index behaves, what role it plays in your portfolio, how it helps diversify your investments, and the performance of index/equity fund alternatives matter.

Why do investors choose ETFs?

ETFs have several advantages over traditional open-end funds. The 4 most prominent advantages are trading flexibility, portfolio diversification and risk management, lower costs, and tax benefits.

How do I choose an ETF in India?

How to Choose Best ETFs in India

  1. Look at the Liquidity. The liquidity of the ETF is one of the parameters that will determine the profitability of your investment.
  2. Know the Expense Ratio. An ETF’s expense ratio is often the deciding Factor when it comes to Investing in the best ETFs.
  3. Check for Tracking Error.

What is the future of ETFs in India?

As per a SEBI report, the ETF AUM has almost doubled from Rs 1.54 lakh crore at the beginning of FY21 to Rs 2.9 lakh crore at the end of FY21. The rising interest can be attributed to the low-cost and well-diversified nature of ETFs. In addition, they can also act as alternatives to actively managed funds.

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Are ETFS a good option in India?

In addition to what Anand has written, one important thing which makes ETFs popular in the US is their tax efficiency over mutual funds. However, in India, mutual funds enjoy the same tax efficiency that ETFs do in the US. In my opinion ETFs are not yet a good option in India.

What makes an ETF unique?

However, there are two striking features of an ETF that make it unique: It is a passively managed fund and usually tracks an index and has evolved as one of the most popular forms of passive investing in India. The first ETF in India, Nifty BeES tracks the movement of the Nifty 50 Index.

Is ETF a good example of passive investing in India?

ETF in India is one good example of passive investing. Below are the characteristics of ETFs which makes it suitable for passive investing. No Active Management: The best part of ETF is, there is no active fund manager who is taking decisions on which stocks to buy and sell.

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What is the difference between an ETF and an index?

The weights of the ETF and the index which it mimics will be the same: as and when the composition changes in the Index, it will get incorporated in the ETF as well. ETFs are not popular in India as they tend to underperform actively managed funds. There is also not much by way of choice for investors. Hence, their liquidity is also lesser.

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