Exchange-Traded Funds (ETFs) are investment funds that are traded on stock exchanges, much like stocks. They typically hold a collection of assets such as stocks, bonds, or commodities, and aim to track the performance of a specific index, sector, commodity, or asset class. Here are the key features of ETFs:
Diversification: ETFs provide exposure to a wide range of assets, allowing investors to diversify their portfolios. For example, by investing in an ETF that tracks a stock market index like the Nifty 50, an investor is indirectly investing in all the stocks that make up that index.
Liquidity: ETFs can be bought and sold on stock exchanges throughout the trading day, providing liquidity and the ability to react to market changes quickly, unlike mutual funds, which are traded at the end of the trading day.
Lower Fees: ETFs generally have lower management fees compared to actively managed mutual funds because most ETFs are passively managed, meaning they simply track an index rather than trying to outperform it.
Transparency: ETFs disclose their holdings on a daily basis, so investors know exactly what assets are in the fund.
Flexibility: Investors can buy as few as one share of an ETF, making it accessible to individuals with smaller amounts to invest. Additionally, ETFs can be used for a range of strategies, such as sector investing, international diversification, or even hedging with commodity or bond ETFs.
In summary, ETFs are an efficient and flexible way for investors to gain broad market exposure with lower costs.
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