One of the big challenges for beginners is how to on-board the stock market. While stocks may still appear a little complicated, mutual funds may look too dependent on the fund manager. That’s where ETFs (Exchange Traded Funds) prove to be the right choice. There are two reasons for this:
1) ETFs are passive. This means there is no fund manager on whose decisions your fund depends
2) ETFs are low-cost products which can mirror any index: Nifty or Sensex
The ETF Advantage
Before we get to the advantages of an ETF, remember that it works best over a longer time frame of say, 5 – 7 years. In the very short term, ETFs can also be volatile (like the stock markets) but over a longer period of time, such volatilities get evened out. Since an ETF holds a portfolio that exactly mirrors an index like Nifty 50 or Sensex, you don’t have to worry about fund managers taking wrong decisions or betting on the wrong trend. The ETF route to investing offers some unique advantages to the investors like:
· ETFs directly track an index/commodity. Hence there is no human bias involved; unlike in mutual funds, which are subject to fund-manager’s bias (which might have its merits and demerits)
· Because there is no human-bias involved in the case of ETFs, they are safer than other funds and give you returns equivalent to the market at all times.
· Since ETFs are managed passively, they are low-cost products with their management fees being significantly lower than mutual funds (for which the expense ratio can go as high as 3%). Additionally, unlike mutual funds, ETFs do not charge trailing commissions or an Exit Load.
· ETFs can be bought and sold in the stock market like any other stock and can also be held in the same demat account.
· Last but not the least, ETFs are naturally diversified. That is because indices are created in such a way as to have a diverse mix of sectors to reduce risk. There is power in ETFs to create wealth in a simple and elegant manner.
How to invest in ETFs? Where to start from?
OK, now you know what ETFs are and how they are a good way to on-board the equity markets. But then come these two questions:
1. How do I select the right ETFs for me?
2. How do I actually go about investing in these ETFs in an easy way?
The answer: Upstox and Tavaga’s partnership.
Tavaga is a robo-advisory platform that helps you invest in ETFs that are best suited to your specific goals (like buying a car, vacation to an exotic destination, etc.) and your individual risk profile. This selection is totally algorithm-based and hence unbiased.
The next question is execution. Here’s where Upstox comes into the picture. This fast-growing discount-broking platform has been the choice of more than 2.5 lakh Indians who chose to invest in the market. It helps you execute your choices with just a few clicks. Also, in the future, if you want to venture into the stock market, Upstox’s low-to-no brokerage plans are the perfect choice for you.
Both platforms offer you the choice of investing from the web and mobile platform.
The Future…
This entire exercise has a larger purpose. Upstox, with its strong presence in non-urban areas will help bring scores of potential investors into the equity fold and expand the equity cult. Tavaga, with its no-fuss investing style, will encourage investments. And that is the key to creating wealth in the long run and you are just a download and click away!