Published: 20th Sep 2024
By: Value Research
Exchange-traded funds (ETFs) are investment vehicles that blend features of stocks and mutual funds. Like index funds, ETFs track an underlying index, such as the Nifty or Sensex, and hold a basket of securities. However, unlike index funds, ETFs are traded on stock exchanges throughout the day, with prices fluctuating based on market demand.
Let’s look at some of the key benefits of adding ETFs to your portfolio.
Since ETFs replicate the performance of an underlying index, they offer an easy way to achieve market-like returns. Therefore, they are an excellent starting point for individuals looking for the high returns of equities but are unfamiliar with equity investing.
As ETFs are passive funds, they do not involve any active decision-making by a fund manager. Hence, the expense ratios of ETFs are lower compared to actively managed funds, making them more cost-effective.
Like any other mutual fund, investing in an ETF provides instant diversification as it is invested in multiple stocks across sectors.
Our final benefit in this list relates to how ETFs are different from traditional mutual funds. To learn more about it, read the full story by clicking the link below.