06-12-2024
03:01 PM
Prelims: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.
Mains: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
An Exchange-Traded Fund (ETFs) is an investment fund that allows investors to gain exposure to a diversified portfolio of assets like stocks, bonds, or commodities. ETFs have become a popular investment option for individuals seeking diversification, flexibility, and cost-effectiveness.
By combining the best features of both mutual funds and stocks, ETFs allow investors to gain exposure to a wide array of assets such as equities, bonds, commodities, and more. Although ETFs are generally low-cost and tax-efficient, risks such as market fluctuations and sector concentration are there.
An Exchange-Traded Fund (ETF) is a type of investment fund that combines features of both mutual funds and stocks. It allows investors to gain exposure to a diversified basket of assets such as stocks, bonds, commodities, or other securities. ETFs provide the flexibility of being traded on stock exchanges like individual stocks, meaning they can be bought and sold throughout the trading day at market prices.
There are various types of ETFs, each designed to meet the specific needs and preferences of investors. Some ETFs track broad market indices, while others focus on specific sectors or asset classes. Key types of ETFs are as follows:
ETFs combine the diversification benefits of mutual funds with the liquidity and ease of trading individual stocks. Investors can benefit from low costs, transparency, and tax efficiency, making ETFs a popular choice for both beginner and experienced investors. Key features of Exchange-Traded Fund are:
While ETFs offer several advantages, they also come with certain risks that investors need to consider. Market risk, liquidity concerns, and the potential for tracking errors can affect an ETF's performance. Major risks associated with ETFs are:
While both ETFs and mutual funds are popular investment vehicles that offer diversification, they differ in key aspects such as trading, management style, and cost structure. Key differences include:
Q1. What is the meaning of an Exchange Traded Fund?
Ans. An ETF is a type of investment fund that is traded on stock exchanges, allowing investors to gain exposure to a diversified portfolio of assets like stocks, bonds, or commodities.
Q2. What is the objective of an Exchange Traded Fund?
Ans. To track the performance of a specific index or asset class, providing investors with a cost-effective way to diversify their portfolios.
Q3. Who controls ETFs in India?
Ans. ETFs are regulated by the Securities and Exchange Board of India (SEBI).
Q4. What is the power of an ETF?
Ans. The power of an ETF lies in its ability to combine diversification, liquidity, and low-cost management, allowing investors to easily gain exposure to a wide range of assets.
Q5. Is an ETF a good investment?
Ans. The ETFs can be a good investment for those seeking diversification, cost-effectiveness, and flexibility. However, they come with risks and should be considered based on individual financial goals and risk tolerance.
© 2025 Vajiram & Ravi. All rights reserved