ETFs explained: A smart, low-cost way to grow your wealth

Index funds are usually touted as the 'no effort' way to create wealth in the market, as they not only replicate a broad market but are also low-cost. What if we say there is an option that is not only a lot more accessible but also has a lower cost? You can try out ETFs (Exchange-Traded Funds) - more specifically, index ETFs. And if you wish to invest in global stocks , you can check out the tax-friendly option of international ETFs. In this article, we'll discuss these two options. These can be a quicker alternative to researching individual stocks. The basics of ETFs ETFs, or Exchange-Traded Funds , are highly similar to funds, except ETFs are traded in exchanges. Similar to funds, ETFs also collect money from investors and invest in a wide range of companies. They have their own AUM, NAV and fund manager, too. However, ETFs are more similar to the less common closed-ended funds. Although you can buy an ETF from the exchange, you are simply getting a share in the investment pool, rather than your money going directly into the investment pool. The mechanism is similar to investing in a company's stock, where new shares are not created whenever you buy, but rather existing shares are traded between participants. These schemes trade on stock exchanges throughout the trading day, meaning their prices fluctuate based on supply and demand - similar to individual stocks. While each ETF has a Net Asset Value (NAV) , much like a mutual fund, its market price is governed by demand and supply dynamics. As a result, an ETF could trade at a premium or discount to its NAV. Now, let us look at the two options for investing in equities. Investing in index ETFs Index ETFs track broad market indices such as Nifty 50, Sensex, etc. They aim to replicate the performance of the underlying index, offering investors a cost-effective way to gain market exposure. Because they are passively managed, index ETFs have lower expense ratios compared to actively managed funds. The best part is, that most of the ETFs available on the market are indistinct from each other. This means not much research or analysis is required to select a particular ETF for your investment goals. Suggested read: What is a Nifty ETF? Investing in international ETFs Similar to how there are ETFs tracking Indian indices, firms have also created ETFs to track international market indices. These ETFs provide access to global markets, tracking indices like the FTSE 100, S&P 500, or Nasdaq 100. International ETFs help diversify geographic risk and tap into growth opportunities out

This article was originally published on May 15, 2025.