Exchange Traded Funds are a kind of investment product that combine the flexibility of stock investment (buying selling instantly as if they are a stock) and simplicity of mutual funds. They are categorized as passive investment and are based on indices and invest in the securities (stocks/companies) in the same proportion as the underlying index.
Ie. NIFTY Index contains index of 50 companies, so a nifty ETFs would invest in these 50 companies based on their weightage on NIFTY Index. As there is no extra ordinary effort and fund management, so its expense ratio is very less compared to mutual funds. Same is the case of Sensex ETF; Sensex ETFs would invest in the companies based on their weightage on the Sensex index.
Generally, bear market or crash in the stock market is the best time to invest in ETFs, the reason is that during bear market, the indexes falls heavily (because underlying stocks falls), so one can get more number of units of ETFs. When market improves, the index goes up and investors get better return.
The return on ETFs are almost similar to return on Indexes however there can be minor differences becasuse of some time lag by fund houses in investing in the same proportion of amount in the index companies.
However, one can invest in SIP mode in ETFs at any time for long term to get better average rate of acquisition.
As the name suggest Exchange Traded Fund (ETFs), so they are marketable securities. They are traded in the exchange as if they are a normal stock. You can buy ETFs from your demat account by searching their name and placing order (as if they are a company share). Because of this flexibility, it is very liquid and you get your funds back into your demat account quicker than mutual funds. Short term and Long term capital gain taxes are applicable in ETFs.
While selecting for best ETFs to invest, I have considered the credibility and track records of fund houses as well apart from return on investment. I have ignored small fund houses.
|Name||1 year return||3 year return||5 year return||Expense ratio||Assets|
|Nippon India ETF Sensex||-17.53||2.92||4.20||0.07%||18 cr|
|HDFC Sensex ETF||-17.54||2.96||-||0.05%||76 cr|
|SBI ETF Sensex||-17.55||2.93||4.18||0.07%||20308 cr|
|ICICI Pru Sensex ETF||-17.43||2.88||4.15||0.08%||24 cr|
|SBI ETF Nifty 50||-19.70||0.98||-||0.07%||53167|
|ICICI Pru Nifty ETF||-19.61||0.95||3.45||0.05%||1541 cr|
|Kotak Nifty ETF||-19.77||0.89||3.12||0.14%||863 cr|
|Axis Nifty ETF||-19.61||-||-||0.07%||6 cr|
|Mirae Asset Nifty 50 ETF||-19.67||-||-||0.07%||77 cr|
Assets data as on 31-Mar-2020 and other data as on May-5-2020. Data source: ValueResearchOnline
From the above table, follwing can be concluded
As far as return on investments are concerned, following ETFs have better return
Though 5 years returns of these funds are just between 3% to 5%, however if you compare them with normal Equity funds, they are better. For example, SBI Bluechip fund return is 2.90% and HDFC Growth Opp fund return is -0.10% in last 5 years.
As we are going through bear market phase right now, so in my view this is good time to invest in ETFs for those who can't track market frequently and want to get retuns based on Sensex and Nifty indexes returns.
As per a stats, Nifty 50 index has given @13% CAGR from 1998 to 2019 that is far better than many mutual funds.
Disclaimer: I am not SEBI registered, I do not hold any of these funds and this post is for educational purpose only.
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