Exchange Traded Funds (ETFs)

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Overview:

The total investment by the Employees’ Provident Fund Organisation (EPFO) in exchange-traded funds (ETFs) in more than seven years has crossed Rs 2.5 trillion, Minister of State in the Labour Ministry recently told Lok Sabha .

About ETFs: 

An exchange-traded fund (ETF) is a collection of marketable securities that track an underlying index. ETFs combine features of mutual funds and stocks, allowing investors to gain exposure to a basket of assets while providing the flexibility to be traded on stock exchanges like individual stocks.

  • Diversification: ETFs provide diversification by allowing investors to gain exposure to a basket of assets with a single investment.
  • ETFs can be bought and sold throughout the trading day on stock exchanges at market prices, unlike mutual funds which are priced only at the end of the trading day.
  • Affordable: ETFs typically have lower fees and expenses compared to actively managed mutual funds, as they are passively managed to track an index.
  • The largest ETFs track major stock market indexes like the S&P 500, providing investors with broad exposure to the overall stock market.

Types of ETFs:

  • Equity ETFs that track equity indices.
  • Debt ETFs that invest in government and corporate bonds.
  • Commodity ETFs that invest in commodities like gold and silver.
  • Sectoral/thematic ETFs that focus on specific industries or themes.

International ETFs that track foreign indices.


Q1: What are mutual funds and stocks?

Mutual funds are investments in a portfolio of securities, managed by professionals, offering diversification and reduced risk. Stocks are direct investments in individual companies, requiring expertise and risk tolerance.

Source: Investors pour into India ETFs ahead of election result