If you want to build up your wealth in the long term, your one-stop investment destination would be the stock market. The financial resources this market offers have become the main reason for the inclination towards investing in them. Similarly, Exchange Traded Fund (ETF) refers to the bunch of securities that can be traded on stock exchanges. These funds usually put together the financial products of multiple people and utilize them in buying different monetary assets like bonds, shares, and derivatives.
Since its emergence, ETFs have become the mainstream financial product of the stock market for their unbelievable performance. Registered under the Securities and Exchange Board of India, ETFs are the most attractive option for investors with very limited knowledge of the stock exchange.
Types of Exchange Traded Funds
The popular ETFs that are widely used are as follows:
Pros and Cons of Exchange Traded Funds
There are several advantages and disadvantages of ETF investment that should be considered before investing in them.
Advantages
If you want to keep your expenses low, select investing in industry ETFs to benefit from their business growth and development.
Since there are several types of ETFs available, it can be possible for the investor to diversify their portfolio with various securities without pause.
Due to their trading principles and pricing point, ETFs are highly transparent to trade. Unlike mutual funds, these funds are readily available for trading on the stock exchange.
Since ETFs prefer investing only in high-performing companies listed under the stock exchange, there's less risk involved in ETFs investment than in mutual funds investment.
Once the value of ETFs has changed, you can easily buy or sell the security. Make a shift towards security that ensures giving adequate profits. Compared to mutual funds, ETFs have high liquidity, which is a flexible investment choice.
Limitations
You need to be aware of ETFs' limitations to avoid the risks associated with them.
Different Risks Involved
With moderate level diversification, ETFs can be risky for your portfolio. With the investment decision in the international index, you are likely to face political risks. Similarly, credit risk gets added to your investment portfolio with the bond ETFs.
Volatility
Unlike government bonds, ETFs are not stable. Thus, the prices often get fluctuate as per the market trends. The possibility of earning profit or loss depends on the latest conditions of the stock market.
Today, many investors use ETFs to build a financial portfolio. Since they consider it as the unique means of wealth growth, they keep the latest updates on the financial market, compare the available ETFs, and research thoroughly to overcome the limitations. Keep patience and evaluate the securities to make an informed decision.