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Market orders in ETFs?

Market orders in ETFs?

Investors can invest in exchange-traded funds to acquire access to an index, a commodity, a bond, or a basket of assets, similar to an index fund. When investing in ETFs, an investor can choose from various order types. i.e.: market order or limit order, each having significant differences affecting the price.  When it comes to trading ETFs, should investors prioritize price or speed? Although there is no definite answer to this topic, distinguishing between market and limit orders might help you make more intelligent selections. We'll go over the differences among order types and why an individual might prefer one over the other. Market orders: A type of order that ensures execution  A market order is an order to purchase or sell an ETF at the next best price available. If there is contra-side liquidity, a market order is almost always executed, but not at a price.  It's not the same as a limited order, which specifies the maximum price you're willing to buy or the lowest price you're ready to sell. If there are no contra-side orders at the price, a limit order is guaranteed at a price but not execution.  If you place a market order, you take the chance that the prices are accessible when the venue receives your order and are the same as the ones you had seen when you sent the order in the first place.   For example, if you sent a market buy order, the ETF's prices remain the same or fall while your order was in transit.  Even if the following available prices are worse for you than the previous ones, you will still receive your assured execution. A notable difference between a market order and a market-on-close order, which intends to participate in the official exchange auction and then execute at the closing price.  Even though shares can always be redeemed with the issuer at the end of the day to tidy up the market maker's holdings. An ETF market maker should theoretically be interested in buying and selling an unlimited amount of ETF shares at their fair value price.   However, this does not imply that an ETF market maker will place an unlimited number of ETF shares on the bid or offer price throughout the day, every day, or when an investor's market order hits the exchange's order book. For an ETF market maker, the expenses of attempting to adopt such a strategy far exceed the benefits.  Market makers for ETFs must consider the number of ETF shares they are quoting throughout the industry's ETFs. They distribute their bids and offers throughout most US equities exchanges and off-exchange venues during the trading day to gather as much customer order flow as possible.   However, there's only so much liquidity available at any particular time during the trading day. While an ETF market maker may be ready to price an entire order at fair value and buy or sell the ETF shares that an investor wishes to trade, finding and interacting with such liquidity takes time. A market order won't always do that since it changes as soon as it enters the market.  Limit orders: A type of order that has a safety feature  A limited order will eventually arrive at a fair value price, but it will take some time while waiting for a contra-side order. A limit price specifies the highest price at which you are interested in buying an ETF or the lowest price at which you want to sell an ETF to the market maker.   An investor can fix that value higher (or under) the best available offer (or Bid) to allow short-term price changes while still protecting against significant fluctuations. Why is it important to select the correct order types?  When choosing the proper order type, the investor must examine what risks they are ready to tolerate in their execution plan. This entails selecting more important: transaction execution speed or trade price protection.   Limit and marketable limit orders can help you take advantage of the time it takes for an ETF market maker to replenish their liquidity supply to execute the trade properly. FAQs What is a market order? A market order is an order to purchase or sell an ETF at the next best price available. If there is contra-side liquidity, a market order is almost always executed, but not at a price. For example, if you sent a market buy order, the ETF's prices remain the same or fall while your order was in transit.  What is an ETF? An ETF stands for exchange-traded fund (ETF). One single ETF is a basket of securities that can be bought and sold like mutual funds through a brokerage firm. ETFs track a specific index such as S&P, sector, commodity, or other assets. Much like stocks, ETFs can be traded on the market. Are ETFs good for beginners? ETFs are generally suitable for beginners as they are inexpensive compared to a few other investment tools. ETFs have a diversified asset profile, reducing the risk associated with the investment significantly.    Consult an expert advisor to get the right plan for you  TALK TO AN EXPERT
ETF
What is the Average Daily Trading Volume?

What is the Average Daily Trading Volume?

The high volume of trading of an ETF can help us judge the three most traded ETFs in 2022. Let's understand ADTV or the Average Daily Trading Volume for an ETF.  What is ADTV or Average Daily Trading Volume?  Investors refer to the number of shares of a specific stock that change hands on average during a single trading day as Average Daily Trading Volume (ADTV). The average daily trading volume (ADTV) can be determined for five days, ten days, etc. The average trading volume for 20 or 30 days is a regularly used ADTV metric.  ADTV of a single stock, options on a stock, or market indexes like the Nasdaq 100 are all tracked.  The average daily value indicator is an alternative to the average daily trading volume indicator. The average daily value calculates the average dollar amount traded d  William O'Neil's 'How to Make Money in Stocks' popularized the use of average volume as one of several data sources for investing decisions.  O'Neil emphasized the importance of paying attention to ADTV for two reasons Ensure that a stock is liquid enough to trade fast. To ensure that stock traders' present supply and demand are on your side.  When a stock's price declines, its daily volume should be lower than the usual daily volume, indicating that selling pressure is easing. When a stock's price has been consolidated and isn't growing much, you would like to see increasing volume as the prices begin to rise, indicating more buyers are entering the market. When a stock's price increases, you want the increased volume to indicate that it will continue to rise. Three most traded ETFs based on three months of ADTV SymbolETFAvg Daily Share Volume (3mo)AUM in $ 1000sTQQQProShares UltraPro QQQ116,601,047$15,408,300.00SPYSPDR S&P 500 ETF Trust112,241,844$385,693,000.00UVXYProShares Ultra VIX Short-Term Futures ETF82,200,375$893,935.00 1. ProShares UltraPro QQQ Overview TQQQ is a leveraged fund that provides 3x exposure to NASDAQ 100 stocks over a one-day holding period. The underlying index contains 100 of the top non-financial listed companies on NASDAQ based on market capitalization.   Technology businesses have historically dominated TQQQ's underlying index; therefore, its future outcomes may have a strong connection to the tech industry.   The fund uses a quantitative approach to determine the type, number, and combination of investment positions that it expects to deliver daily returns commensurate with its investment objective.   The fund is a very short-term tactical vehicle and, like many levered products, is not a buy-and-hold ETF. The expense ratio of the ETF is 0.95%. Performance Performance [as of 03/02/22]1 year3 years5 years10 yearsTQQQ13.55%59.06%49.35%47.24%Nasdaq 100 Index9.84%26.86%22.73%19.72% 2. SPDR S&P 500 ETF Trust  Overview  SPY is the most well-known and oldest US-listed ETF, and it consistently ranks first in terms of AUM and trading volume. The fund tracks the S&P 500, a widely followed US index.   Few investors are aware that the S&P index committee selects 500 equities to reflect the US large-cap space, not usually the 500 most significant by market capitalization, resulting in occasional single-name absences.  Nonetheless, the index provides excellent coverage to the US large-cap market. It's worth noting that SPY is a unit trust, an older but still functional structure. SPY, as a UIT, must completely replicate its index (which it almost certainly would) and forego the negligible risk and return of securities lending.   It also can't reinvest portfolio income between distributions, resulting in a cash drain that hurts performance in rising markets but helps performance in down markets. SPY is a popular vanilla trading instrument. The ETF's expense ratio is 0.09 percent.  Performance Performance [as of 03/02/22]1 year3 years5 years10 yearsSPY14.81%17.98%14.97%14.49%S&P 500 Index14.94%18.06%15.06%14.61% 3. ProShares Ultra VIX Short-Term Futures ETF  Overview  UVXY is a commodities pool wrapper that provides daily leveraged exposure to short-term VIX futures, which are designed to capture the volatility of the S&P 500.   UVXY is a short-term trading instrument, not a long-term investment vehicle because it is a geared instrument with daily resets.   Returns for a holding period of more than one day, and frequently do, differ significantly from 1.5x. UVXY, like its others, offers scaled returns on the front and 2nd-month futures contracts rather than the VIX index itself.  Investors will receive a K-1 at tax time if they participate in a commodity pool, but they will eliminate the counterparty risk of an exchange-traded note. The fund provided 2x leveraged exposure before February 28, 2018. The expense ratio of the fund is 0.95%.  Performance  Performance [as of 03/02/22]1 year3 years5 years10 yearsUVXY-97.86%-83.44%-78.78%-85.05%S&P 500 VIX Short-term futures Index-58.07%-40.15%-- FAQs What is ADTV? Investors refer to the number of shares of a specific stock that change hands on average during a single trading day as Average Daily Trading Volume (ADTV). What is a high ADTV? An ADTV is high when more investors are interested in a stock and there is a high demand for it while a low ADTV means the stock is not in demand. What is the average daily volume indicator? Average Daily Trading Volume is an indicator that refers to the number of shares of a stock brought and sold on a trading day. What are the 3 most traded ETFs based on three months of ADTV? The 3 most traded ETFs are: ProShares UltraPro SPY SPDR S&P 500 ETF Trust UVXY ProShares Ultra VIX Short-Term Futures ETF TALK TO AN EXPERT
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What are Proshares ETFs?  Types of Proshares ETFs.

What are Proshares ETFs? Types of Proshares ETFs.

Louis Mayberg and Michael Sapir, both former Rydex workers, created ProFunds Group in 1997 with $100,000. It also introduced bear market inverse mutual funds that year.  ProFunds Group introduced ProShares, its first inverse exchange-traded fund, in 2006. The business created an exchange-traded fund that invests in Bitcoin futures contracts in October 2021.  ProShares created several ETF product strategies that are available to investors.  With more than $60 billion in assets, ProShares currently has one of the most extensive ETF line-ups. Dividend growth, interest rate hedged bonds, and geared (leveraged and inverse) ETF investing are all areas where the company excels.   ProShares continues to develop new solutions that give investors strategic and tactical options for increasing returns and managing risk.  The company also offers several Proshares ETFs Equity ETFs Non-equity ETFs.   What are Equity ETFs and Non-equity ETFs? Equity ETFs consist of dividend growers, thematic, rising rates, ex-sector, and factors. Non-equity ETFs have bitcoin-linked, interest rate hedged, alternative, and volatility.  ProShares is one of the few firms to provide geared ETFs, i.e., leveraged and inverse ETFs.   ETFs are of two categories: equity and non-equity   Equity ETFs are of types such as broad market, sector, international and thematic investing.   Non-equity ETFs are ones like fixed income, commodity, and currency ETFs. Proshares ETFs strategies are of seven types   Explore Dividend Growth   Thematic Opportunities  Eliminate an S&P 500 Sector  Gain Exposure to Bitcoin Returns  Hedge Against Rising Rates  Leveraged & Inverse Strategies  Opportunities in Market Volatility.  Let’s elaborate on them one by one.  1. Explore dividend growth strategy Aims to capture dividend-rich stocks as underlying assets. The hallmarks of the quality of a firm are evaluated by stable earnings, fundamentals, and a strong history of profit and growth.  The indicators of consistent dividend growth are company health, strong management and durability, and staying power. The ETF follows several dividend-aristocrats indices like the S&P 500® Dividend Aristocrats Index, Russell 2000 dividend growers ETF, MSCI EAFE, MSCI EM, etc.  2. ProShares Thematic ETFs Give investors access to firms at the forefront of trends that reshape our economy and reinvent our future. These include online retail, pet care, transformational changes, big data, nanotechnology, innovative materials, etc.  The Proshares ex-sector ETFs allow investors to eliminate specific sectors that the firm thinks will underperform from the underlying index; the S&P 500 ex-energy ETFs exclude oil, gas, and fuel sectors from the S&P 500. S&P 500 Ex-Financials ETF excludes banks, diversified financials, consumer finance, asset management, investment banking and brokerage companies, insurance companies, and REITs.   3. S&P 500 Ex-Health Care ETF Excludes pharmaceuticals, biotechnology and life sciences tools and services companies, health care providers, equipment and services companies.   4. S&P 500 Ex-Technology ETF Excludes information technology companies, including software and technology hardware and equipment, and semiconductor companies.  5. ProShares Bitcoin Strategy ETF (BITO) It is a novel U.S.-designed ETF to provide investors with an easy way to add bitcoin exposure to portfolios.   The ETF provides investors with a one-stop solution by eliminating the need to maintain separate accounts and wallets to manage bitcoin investments. It is regulated, unlike crypto, and is available all day to trade.  6. ProShares Investment Grade Interest Rate Hedged (IGHG) and ProShares High Yield—Interest Rate Hedged (HYHG) are corporate bond ETFs with an interest rate hedge built-in that aims for a duration of zero, effectively eliminating interest rate risk.  Since 2006, ProShares’ line-up of ETFs has helped investors use leverage to increase their buying power and inverse strategies to profit during or protect a portfolio from declines.   7. Leveraged ETFs Increase exposure to enhance profits and inversely do the same in the opposite direction, thus, providing a hedge against a company or a sector.   8. UltraPro QQQ leverage is some leveraged ETFs  Short QQQ,   Ultra-short QQQ  Triple inverse leveraged ETFs.   Volatility ETFs are for experienced investors who want to profit from losses in the predicted volatility of the S&P500, as defined by the pricing of VIX futures contracts, while also lowering their risk in their U.S. stock portfolio.   Some volatility ETFs are VIX Short Term Futures ETF, VIX Mid-term futures ETF, VIX Ultra short futures ETF and Short VIX short-term futures ETF.  FAQs What are Proshares ETFs? Louis Mayberg and Michael Sapir, both former Rydex workers, created ProFunds Group in 1997 with $100,000. It also introduced bear market inverse mutual funds that year.  ProFunds Group introduced ProShares, its first inverse exchange-traded fund, in 2006. The business created an exchange-traded fund that invests in Bitcoin futures contracts in October 2021. What are Equity ETFs and Non-equity ETFs? Equity ETFs consist of dividend growers, thematic, rising rates, ex-sector, and factors. Non-equity ETFs have bitcoin-linked, interest rate hedged, alternative, and volatility.  ProShares is one of the few firms to provide geared ETFs, i.e., leveraged and inverse ETFs. Is an ETF better than a stock? Investing in an ETF is less risky than investing in a stock, as ETFs are diversified. In the case of ETFs, investors do not control what happens to the portions of the ETFs. ETFs have a diversified profile of assets, and the risk associated with the investment reduces significantly. In stocks, the risk attached is higher as the stock price depends entirely upon the company’s performance and other exogenous factors of the world. TALK TO AN EXPERT
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What is Beta in ETFs? All you need to know

What is Beta in ETFs? All you need to know

While analyzing investments, investors use a variety of financial measures. Before purchasing a security, it is vital to have a good understanding of the potential of an investment.   The beta parameter, used in fundamental analysis, is one of the most extensively used metrics.  Amongst the essential financial measurements, you've probably never heard of is beta. This article will explain beta in ETFs and how it affects your exchange-traded funds.  First and foremost, it is important to learn more about beta and how it affects stocks and ETFs.  The statistical metric beta is often used to analyze investments. It examines a stock's sensitivity to the larger market, which is commonly quantified by an index such as the Nasdaq 100, S&P 500, etc. The Direxion Nasdaq 100 Equal Weighted Index (QQQE) is one ETF that tracks the Nasdaq 100 Index.  Beta measures just how much security is likely to go up or down daily concerning the tracking Index. It is, in essence, a measure of a security market or systemic risk.   A stock with beta 1.0 swings in lockstep with the general market, that is, a 1% increase or decrease in the underlying index, in our case, the Nasdaq 100, is mirrored by a 1% gain or fall in the company's price.  Let us look at it with the help of a simple hypothetical illustration Source: EduFund Research Team As you can see, QQQE tracks the Nasdaq 100 perfectly, leaving the tracking error behind. The ETF perfectly mirrors the changes in the Nasdaq 100. However, this is not the case always. In our example, the beta is 1.  The lower the beta, the less susceptible the underlying instrument is to the market. The QQQE has a beta of 1.04, according to ETF.com, suggesting that if the Nasdaq 100 rises by 1%, the ETF will climb by 1.04 percent. This is because the ETF's fundamental driver composition differs from the index, it has a differing beta value.  According to Yahoo Finance, the Aberdeen Standard Physical Gold Shares ETF (SGOL) has a beta of 0.08, which means that if the S&P 500 rises 1%, the gold ETF will advance only 0.08 percent. Since the ETF's fundamental drivers differ from stock ETFs, it has a lower beta value.  As a result, putting together an investment portfolio with composite or blended beta value can be an effective risk management strategy. If the equity markets fall, an investor can place himself with downside protection with a beta of 0.08, the Global Beta Low Beta ETF, For example, has low market fluctuations than the S&P 500 because the index is re-weighted on a revenue basis and is designed to reflect the results of components from the S&P 500 with a minor beta comparable to the S&P 500.  GBA restricts each index element at 5% through quarterly rebalancing to mitigate concentration risk at the issuer level. Similarly, fixed-income ETFs have lower beta values than stock ETFs since bonds are less volatile than equities.   A bond ETF that invests in investment-grade bonds is the iShares Core U.S. Aggregate Bond ETF (AGG). It has a low beta, implying it is not affected much by market fluctuations.  Investors might also look for volatile ETFs with elevated amounts of market-related volatility. The SPDR S&P Emerging Markets Small Cap ETF, for example, invests in small-capitalization shares in emerging markets. This ETF has a higher beta value.  In financial analysis, beta can be a precious instrument. Depending on the investor's risk tolerance, statistics can assist in determining which stocks are generally steady and low or more volatile.   Investors who are risk-averse and would not want to be subject to higher risks (such as pensioners) should tend to favor ETFs with lower beta values in their portfolios.  Younger investors with a broader investing horizon, on the other hand, may prefer to own ETFs with greater beta values. Those ETFs are likely to have a higher risk-reward profile, making them a good option for youthful investors who have the luxury of time to ride out any losses. FAQs What is an ETF? An ETF stands for exchange-traded fund (ETF). One single ETF is a basket of securities that can be bought and sold like mutual funds through a brokerage firm. ETFs track a specific index such as S&P, sector, commodity, or other assets. Much like stocks, ETFs can be traded on the market. Is an ETF better than a stock? Investing in an ETF is less risky than investing in a stock, as ETFs are diversified. In the case of ETFs, investors do not control what happens to the portions of the ETFs. ETFs have a diversified profile of assets, and the risk associated with the investment is reduced significantly. In stocks, the risk attached is higher as the stock price depends entirely upon the company’s performance and other exogenous factors of the world.    Connect with an expert advisor to get the right plan for you TALK TO AN EXPERT
ETF
What are Inverse ETFs?

What are Inverse ETFs?

An inverse ETF (exchange-traded fund) is a type of ETF that rises when the underlying asset prices fall.   Contrarian traders who want to profit from the decrease in the value of an asset generally tend to use such instruments. Contrarian investing is the investment strategy of profiting from trading against the market direction.   For example, if the market is bearish, i.e., falling, the contrarian investor is bullish, i.e., expects growth, and hence will look for buying prospects.  Simply put, when the index 'sees' the ETF 'saws.' illustratively.  Inverse ETFs are similar to short-leveraged ETFs but differ in the gearing ratio. The gearing ratio is the means of measuring financial leverage to equity. Inverse ETFs generally have a gearing ratio of 1, whereas short-leveraged ETFs can have a gearing ratio of 2 or 3.   Short-leveraged ETF is ProShares UltraPro Short QQQ which provides a 3x daily short exposure on Nasdaq 100. Inverse ETF is ProShares Short Russell2000 which provides a 1x daily short on the Russell 2000. The inverse of an ETF is also called a short ETF or a Bear ETF Like short-leveraged instruments, inverse ETFs also hold swaps to achieve their exposure. A short Russell 2000 will hold swaps paying the return to the counterparty. If the index trades up, the fund will pay the return to the counterparty, decreasing the ETF value; otherwise, the index goes down.   The ETF rebalancing needs daily attention to achieve this kind of balance. Inverse ETFs are balanced daily; hence they are best suited as a short-term instrument.   In the long run, the ETF will exactly replicate the index; on the contrary, no guarantee of direction.  The illustration below helps us comprehend this with ease DaysDaily market performanceExpected index levelExpected 1x Inverse ETF levelDaily ETF performance00%100100 1-5%95.00105.005%2-5%90.25110.255%3-5%85.74115.765%4-5%81.45121.555%5-5%77.38127.635%6-5%73.51134.015%7-5%69.83140.715%8-5%66.34147.755%9-5%63.02155.135%10-5%59.87162.895%10-day cumulative change -40.1362.89  There are significant differences between holding an Inverse ETF and short selling. Short selling requires a margin account. The trader borrows these securities to sell at a higher price to other traders, and they can repurchase the asset at lower prices, thus winding up the trade by returning the lent securities.   However, there is a risk of costs rising after a short time in short selling, which exposes the investor to a virtually unlimited upside. When an investor has an inverse ETF, and the underlying exposure is going down, the investor's exposure in ETF is going up, i.e., the ETF NAV moves up, increasing the notional exposure to the position if the overall direction is correct.  Thus, this is precisely the opposite of what happens in short selling. Inverse ETFs allow the investors to short with a maximum loss of the value of the ETF, i.e., the NAV of the ETF. Inverse ETF NAV moves up when the market is going down and converse if the market is falling. Several types of inverse ETFs can be used to profit from declines in the market indices, such as Russell 2000 or Nasdaq 100. Some ETFs are also sector-specific such as energy, banking, FMCG, etc. Some investors use these inverse ETFs to hedge their portfolios against falls.   For instance, if an investor owns an ETF tracking the Nasdaq100, he could hedge his position with an inverse ETF that tracks the Nasdaq100.  However, such hedging can have its own set of risks since one of them is sure to make a loss in your portfolio. While this may appear appealing, losing money is also significant.  Inverse exchange-traded funds aren't for everyone or even most investors. More experienced traders who understand what they're investing in and why are better suited to use them.   Regular ETFs can still provide strong returns, and investors should stick to lower-risk products that can still generate attractive returns. FAQs Are inverse ETFs a good idea? An inverse ETF is a high-risk investment option that may not suit risk-averse investors. This investment vehicle is suitable for highly risk-tolerant investors who are comfortable with the risk that inverse ETFs possess.   Who buys inverse ETFs? Inverse ETFs are for highly risk-tolerant investors. Inverse exchange-traded funds aren’t for everyone or even most investors. More experienced traders who understand what they’re investing in and why they are investing in a particular asset are better suited to use them. What is an example of an inverse ETF?   Several types of inverse ETFs can be used to profit from declines in the market indices, such as Russell 2000 or Nasdaq 100. Some ETFs are also sector-specific such as energy, banking, FMCG, etc. Some investors use these inverse ETFs to hedge their portfolios against falls.    For instance, if an investor owns an ETF tracking the Nasdaq100, they could hedge their position with an inverse ETF that tracks the Nasdaq100.    What does an inverse ETF do?   An inverse ETF (exchange-traded fund) is a type of ETF that rises when the underlying asset prices fall.   Inverse ETFs are similar to short-leveraged ETFs but differ in the gearing ratio. The gearing ratio is the means of measuring financial leverage to equity. Inverse ETFs generally have a gearing ratio of 1, whereas short-leveraged ETFs can have a gearing ratio of 2 or 3.    Short-leveraged ETF is ProShares UltraPro Short QQQ which provides a 3x daily short exposure on the Nasdaq 100.   Inverse ETF is ProShares Short Russell 2000 which provides a 1x daily short on the Russell 2000.   Consult our expert to discuss the right plan for you.  TALK TO AN EXPERT
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ETF creation and redemption process

ETF creation and redemption process

The key to understanding any concept is the often-neglected details. Thus, knowing the ETF creation and redemption process becomes of paramount importance. This process tells us how exchange-traded funds gain exposure to the market and the secret behind their affordability. Let's have a look at the ETF creation and redemption process ETFs creation process  The process begins with the ETF manager filing a plan with the competent authority.   For instance, the manager will file a project with the Securities and Exchange Commission (SEC) if in the USA or the Securities and Exchange Board of India (SEBI) in India. Once the approvals are in place, the ETF manager, often called a sponsor, agrees with the Authorized Party (AP). In some cases, the sponsor and the AP are the same entity.  Step 1:  The creation of exchange-traded funds starts with a party called an Authorized Participant (AP). An Authorized Participant can be a professional, financial institution, market maker, or a person with tons of money Step 2:  Now, it is the job of this Authorized Participant to get hold of all the assets or securities that the ETF wants to hold.  For instance, if the ETF tracks the Sensex, the Authorized Participant buys some quantity of all the constituent shares of the Sensex. Similarly, if the ETF tracks the Dow Jones Industrial Average, the AP will buy some shares of all the 30 companies that are a part of the index.  Step 3:  After that, the Authorized Participant will then deliver these to the Exchange Traded Fund. The Authorized Participant will get a block of ETF shares of equal value as payment for his services.   Usually, a block consists of 50,000 shares. The swap is a one-on-one fair value based on the NAV of the ETF share and not the market value. Both benefit from this transaction; the AP gets the ETF shares that he can resell for profit, and the ETF provider gets the stocks it needs to track.  Step 4:  The ETF shares received by the AP are listed in the secondary market and traded just like standard stocks.   ETFs redemption process  The redemption process can be associated with two people  The Authorized Participant  Retail investor. For the Authorized Participant, it will be as under:  Step 1:  The Authorized Participant buys the shares trading on the stock market.  Step 2:   The Authorized Participant will deliver the shares to the fund.  Step 3:  The ETF will give the underlying securities back to the Authorized Participant.  Step 4:  The Authorized Participant will then sell these securities in the stock market.  An investor can sell off his Exchange Traded Fund in two ways-  Sell openly in the stock market, the most chosen one.  Gather enough ETF shares to make a creation unit (mostly 50,000 units) and sell it back to the fund. Generally, only Institutional investors have this option open due to its higher costs. When the fund gets this creation unit, it is destroyed, and the underlying security goes back to the redeemer.   The study of this creation and redemption is crucial because it keeps the share price of the ETF near its underlying NAV, i.e., the Net Asset Value. Net Asset Value represents the fund's per share/unit price on a specific date or time.   For instance, if the ETF price falls below the NAV, the AP will interfere in the open market and buy up the ETF shares, raising its price and bringing it back to the level of its NAV. Similarly, if the ETF price increases well above its NAV, the AP will intervene and buy the underlying securities and sell off new ETF shares - bringing the price of the ETF shares back to its NAV value.  This arbitrage process is not perfect, but it helps contain the volatility of the ETF share price quite effectively. FAQs How is an ETF created?  Ans. When an ETF is created, a financial organization known as a sponsor purchases a selection of equities to represent the ETF's holdings. The sponsor issues ETF shares that reflect the value of the holding's portfolio once these shares are placed in a trust.  What is an example of ETF creation redemption?  Ans. The AP could sell the shares it was given when the ETF was created and earn a spread between the cost of the assets it purchased for the ETF issuer and the selling price from the ETF shares if the ETF is in high demand and trades at a premium.  What is the creation redemption process of ETFs and the function of authorized participants?  Ans. ETF shares are created through a process known as creation and redemption, which takes place in the primary market at the fund level. It permits authorized participants (APs), like licensed market makers, to trade a predetermined basket of securities, including cash, for a specific number of ETF shares.  Consult an expert advisor to get the right plan for you TALK TO AN EXPERT
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ETFs vs Stocks

ETFs vs Stocks

You already saw the difference between exchange-traded funds and Mutual funds. Now, let us focus on the difference between ETFs and stocks. Investors have many choices to invest in to grow their wealth in today's day and age. The list is virtually unending when investing in stocks, bonds, mutual funds, ETFs, etc.   Investors want to see investments grow; thus, each has many advantages and disadvantages.  Retail investors can choose from stocks and ETFs. Both are available for trading on the stock market. The stock offers ownership in a single firm; an ETF gives you a basket of securities depending upon the type of ETF. Thus, ETFs provide access to virtually any part of the financial market. ETFs are collections of stocks, bonds, commodity derivatives, and other investments traded on an exchange. Source: Freepik What is the similarity between ETFs and Stocks?   ETFs and stocks are taxable upon redemption. Both offer a steady income.  After applicable tax deductions, some stocks pay dividends to the investors' accounts. Similarly, the assets underlying the ETFs also generate dividends and returns, either invested back into the fund or given back to the investors after proper deductions. There are various sectors to choose stocks and ETFs from. Similar to stocks, ETFs can also be traded on the stock exchange. Difference between ETF and Stock? ETFs are a group of securities packaged as a unit and listed on the exchange. These assets need not be only stocks but can be any security.  Fund managers who own the underlying securities manage these ETFs. The concerned investors of the ETFs do not own the underlying assets directly and hence give no ownership and voting rights. Stocks listed on the exchange offer ownership and voting rights (if they are not preferencing shares) in a single company. Preference shares are the shares that give the investor a promised return at the cost of forgoing voting rights in the AGMs.  ETFs are managed by a professional, thus saving you the trouble of deciding which securities in the underlying assets of the ETF to sell or hold. In the case of stocks, investors need to be very vigilant in the market to know when to buy, sell, or hold.   In the case of ETFs, investors do not control what happens to the portions of the ETFs. ETFs have a diversified profile of assets, and the risk associated with the investment reduces significantly.   In stocks, the risk attached is higher as the stock price depends entirely upon the company's performance and other exogenous (outside the control of the person in question) factors of the world.  The liquidity of a stock is way higher than the liquidity of an Exchange Traded Fund. However, in rare cases, the latter can have higher liquidity than the former. FAQs Is an ETF better than a stock? Investing in an ETF is less risky than investing in a stock, as ETFs are diversified. In the case of ETFs, investors do not control what happens to the portions of the ETFs. ETFs have a diversified profile of assets, and the risk associated with the investment reduces significantly. In stocks, the risk attached is higher as the stock price depends entirely upon the company’s performance and other exogenous factors of the world.    Are ETFs good for beginners? ETFs are generally suitable for beginners as they are inexpensive compared to a few other investment tools. ETFs have a diversified asset profile, reducing the risk associated with the investment significantly.    Which is safe, ETF or stocks? ETFs have a diversified profile of assets, and the risk associated with the investment reduces significantly. In stocks, the risk attached is higher as the stock price depends entirely upon the company’s performance and other exogenous (outside the control of the person in question) factors of the world. The liquidity of a stock is way higher than the liquidity of an Exchange Traded Fund. However, in rare cases, the latter can have higher liquidity than the former. Have ETFs considered stocks? ETFs are a group of securities packaged as a unit and listed on the exchange. These assets need not be only stocks but can be any security. Fund managers who own the underlying securities manage these ETFs. What is a disadvantage of an ETF? ETFs attract fees and, like any other investment, carry an element of risk. An investor should conduct proper research before making an investment.   Should I put all my savings into ETF?   It is extremely dangerous to put all your savings into one asset class. As the popular saying goes, ‘Don’t put all your eggs in one basket,’ investors should look to diversify their portfolios.  Is it good to do SIP in ETF?   While investing in ETF, you can invest via SIP or lump sum. Investing through SIP offers investors many benefits. It helps investors stay committed to the goal for a long period and helps them invest regularly.   Is ETF better than a mutual fund?   ETFs and mutual funds are two different investment vehicles for investors. ETFs are both actively and passively managed, but most are passively managed. Most mutual funds are actively managed by fund managers. An investor needs to understand what an investment vehicle offers and how it can help them reach their goal. There’s no right answer to this question, as it differs based on an individual’s financial goals.   Conclusion that every investment decision should be backed by the study of the risks involved.  The investor should keep his risk profile in mind before proceeding.   Most importantly, the strategies and goals of the investor are vital when choosing securities. The right for one might not be the right choice for the other.   Keeping these fundamental similarities and differences in mind helps in better decision-making. Consult our expert advisor to get the right plan for you. TALK TO AN EXPERT
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What are Smart Beta ETFs?

What are Smart Beta ETFs?

Smart Beta ETFs are often known as 'Strategic Beta' or 'factor-based' ETFs. True to their name, these ETFs smartly choose their underlying assets. These ETFs pick the primary assets based on factors other than market capitalization.  ETFs generally classify their investment strategies as active or passive.   However, each had its pros and cons So, avid thinkers and financial market gurus came up with a new approach that combines these strategies.  Most of the benchmarks today are constructed based on the market capitalization of the companies. The Market Capitalization of a company is the product of the share's market price and the number of shares.  The use of market capitalization resulted in the neglect of other vital factors which could better judge the overall health and performance of the company.  For the S&P500 index, we can see that the weights assigned are:  As evident from the above tree map, the S&P500 is heavily skewed towards Apple, Microsoft, and Amazon-leading to passive ETFs being heavily tilted towards large-cap companies, reducing their potential returns.  Smart Beta represents a new way to build the underlying index. Smart beta is an index design process that aims to achieve superior risk-adjusted returns than traditional market capitalization-weighted benchmark indices.  The fund's composition is set by various rules that exist whilst establishing the fund. These ETFs choose company stocks based on volatility expectations, dividend growth, total earnings, etc. Smart Beta ETFs strategies 1. Equal weightings Equal weight is assigned to the securities present in the index irrespective of the market capitalization of the firms.  For example, the Invesco S&P 500 Equal-Weight ETF (RSP) offers equal weights to the securities in the S&P500, unlike the index itself. 2. Fundamental weightings Fundamental weighting is done based on various company fundamentals. Fundamentals such as profit, total revenue, cash flow, etc., are used.  The Invesco FTSE RAFI U.S. 1000 ETF is one fund linked to the FTSE RAFI Index. The index uses reported financial metrics of the companies to weigh them. Metrics like cash flow, book value, total sales, and gross dividend consider the companies.  3. Low volatility weightings The weightings in such ETFs are by using the historical volatility of the stocks – higher volatility implies higher risk. The iShares MSCI EAFE Min Vol Factor ETF is based on less volatile stocks. 4. Factor-based weightings The technique entails weighing securities according to factors divided into levels. Growing smaller enterprises, underpriced valuations, and balance sheet components are examples of such variables.  Some examples of factor ETFs are iShares MSCI USA Size Factor ETF (SIZE), iShares MSCI USA Momentum Factor ETF (MTUM), and iShares MSCI USA Value Factor ETF (VLUE) - depending upon factors like size, momentum, and value, respectively. We delve into the details of these factors later. Advantages and Disadvantages of ETFs Advantages of Smart Beta ETFs Increase returns, reduce risk, and maximize dividends. Smart beta ETF methods aim to reduce market volatility exposure while outperforming standard ETFs. Offer a plethora of strategies to choose from to diversify their portfolio. Smart Beta ETFs are strategy-oriented; an investor can find a suitable ETF that is in sync with the investor's approach. Smart Beta ETFs have a higher expense ratio than passive ETFs but are still lower than actively managed ETFs. Disadvantages of Smart Beta ETFs Since this is a comparatively newer method, the volume of these ETFs on the market might be lower, thus causing liquidity constraints. Although the expense ratio of a smart beta ETF may be lower than those charged by actively managed funds, the savings may not be noteworthy. Investors must consider several factors. As a result, the price of a smart beta ETF may differ from the fund's underlying index value. Market-cap-weighted ETFs may beat smart beta ETFs in some market conditions. If you want to invest in a strategy that incorporates active and passive investing, you should look at smart beta approaches.  FAQs What are the advantages of smart beta ETFs? Here are the advantages of smart beta ETFs: Increase returns, reduce risk, and maximize dividends. Smart beta ETF methods aim to reduce market volatility exposure while outperforming standard ETFs. Offer a plethora of strategies to choose from to diversify their portfolio. Smart Beta ETFs are strategy-oriented; an investor can find a suitable ETF that is in sync with the investor's approach. Smart Beta ETFs have a higher expense ratio than passive ETFs but is still lower than actively managed ETFs. What is a Smart Beta ETF? Smart Beta represents a new way to build the underlying index. Smart beta is an index design process that aims to achieve superior risk-adjusted returns than traditional market capitalization-weighted benchmark indices.  The fund's composition is set by various rules that exist whilst establishing the fund. These ETFs choose company stocks based on volatility expectations, dividend growth, total earnings, etc. What disadvantages of smart Beta ETFs? Since this is a comparatively newer method, the volume of these ETFs on the market might be lower, thus causing liquidity constraints. Although the expense ratio of a smart beta ETF may be lower than those charged by actively managed funds, the savings may not be noteworthy. The price of a smart beta ETF may differ from the fund's underlying index value. Market-cap-weighted ETFs may beat smart beta ETFs in some market conditions. Reading the fund’s prospectus thoroughly is very important to understand all risks.  Consult an expert advisor to get the right plan TALK TO AN EXPERT
ETF
What are Monthly resets?

What are Monthly resets?

In this article, we will discuss what are monthly resets. These leveraged ETFs reset daily and start each day afresh. However, that is not the most prudent strategy for an investor in the long run. Let's understand this, a very volatile market might have a lot of upswings and downswings, and thus, this might erode your holding.   Generally, leveraged ETFs have a negative bias.   Let's take an illustration:  Suppose an index starts at a 100-point mark and an investor has an ETF that replicates this index and also a 2x leveraged ETF. Now, let's assume that the index falls 10% daily. Daily change in the indexETF2x leveraged ETF 100100-10%9080+10%9996 So, you see that a leveraged fund will require a 12.5% change in the index to reach the initial level of 100, whereas the replicating ETF will require an 11.1% return to come to the initial level of 100.   Thus, a leveraged ETF will have a negative bias. Such leveraged ETFs are not suitable for a long-term investment, as choppy markets can essentially erode your investments. To mitigate this, the ETF firms came up with a monthly reset strategy such that the risks of a daily reset are avoided.  In a monthly reset option, ETFs provide a return every month rather than daily - which seems like a very appealing alternative to the daily reset issue. A monthly reset is not a better alternative but only a different option.   However, there's a catch to this reset. This reset happens only on a pre-specified day – usually on the first trading day of the month. Traders who purchase or sell on this specific day can take advantage of the ETF's leverage. Monthly reset products can yield different results than one-day reset products. The monthly reset may be advantageous in unstable markets, but in trending markets, the more extended reset period implies the fund may be under- or overexposed within the month.  Leveraged funds continue to transform and develop new techniques to maximize returns. However, all such methods have found no solution to the beta problem.  (β) decay on account of the daily resetting. The beta (β) of a leveraged fund is the ratio of the fund's realized cumulative return to the index's return in the same period. F is the leveraged return of the fund and X is the underlying index return.  Now, beta drift (BD) is the difference between the beta (β) and the ETF leverage denoted by L.  BD = β – L Now, this BD is also known as a beta decay because the β falls below the fund's leverage in the longer run. For a daily reset, this decay is on the higher side than the monthly reset.   In response to this, monthly resets have leveraged up to a fixed period, i.e., a month.  The bottom line is that a monthly reset is just another reset technique similar to a daily reset; in the long run, both types of ETFs share identical characteristics.   Such decay is present in both these ETFs and risk-averse buy-and-holds investors would not appreciate the same.   Volatile markets will wreak havoc on both these ETFs, and they are sure of underperforming compared to their underlying index in the long run due to the negative bias of these funds.  These options are great for an active investor, but due diligence before proceeding is necessary. FAQs What does it mean when an ETF resets? Most leveraged ETFs reset daily and start each day afresh. However, that is not the most prudent strategy for an investor in the long run. In a monthly reset option, ETFs provide a return every month rather than daily – which seems like a very appealing alternative to the daily reset issue. A monthly reset is not a better alternative but only a different option. However, there’s a catch to this reset. This reset happens only on a pre-specified day – usually on the first trading day of the month. Traders who purchase or sell on this specific day can take advantage of the ETF’s leverage. How often is the reset done for the majority of ETFs with resets? These leveraged ETFs reset daily and start each day afresh. However, that is not the most prudent strategy for an investor in the longer run. Let’s understand this, a very volatile market might have a lot of upswings and downswings, and thus, this might erode your holding. Generally, leveraged ETFs have a negative bias. When should I exit ETF?   An investor can sell off his Exchange Traded Fund in two ways-    Sell openly in the stock market, the most chosen one.    Gather enough ETF shares to make a creation unit (mostly 50000 units) and sell it back to the fund. Generally, only Institutional investors have this option open due to its higher costs. When the fund gets this creation unit, it is destroyed, and the underlying security goes back to the redeemer.  Do ETFs give good returns?   Investing in an ETF is less risky than investing in a stock, as ETFs are diversified. In the case of ETFs, investors do not control what happens to the portions of the ETFs.   ETFs have a diversified profile of assets, and the risk associated with the investment reduces significantly. In stocks, the risk attached is higher as the stock price depends entirely upon the company’s performance and other exogenous factors of the world.  TALK TO AN EXPERT
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Best 3 ETFs strategies that act like Hedge funds

Best 3 ETFs strategies that act like Hedge funds

ETFs were once seen only as a substitute for mutual funds, but now ETFs are caught in a broader light. ETFs now help investors reach all corners of the financial markets independent of geographical boundaries.   First dominated by HNIs (High Net-worth Individuals) and investment companies ETFs have allowed small investors to enter markets. ETFs, nowadays, is also seen as a cheaper and more efficient alternative to hedge funds which are typically out of reach of retail investors.   According to the US Securities and Exchange Commission ‘Hedge funds pool money, from investors and invest in securities or other investments to get positive returns. Hedge funds are not regulated as heavily as mutual funds. Generally, they have more leeway than mutual funds to pursue investments and strategies that may increase the risk of investment losses. Hedge funds are limited to wealthier investors who can afford the higher fees and risks of hedge fund investing, and institutional investors, including pension funds.'  To the casual observer, ETFs and hedge funds might not look similar, but several ETFs look like hedge funds by adopting various strategies. ETFs cannot directly mirror the hedge funds but replicate their performance using the assets in question. Some ETF strategies that act like Hedge funds  1. Direct approach  ETFs are highly liquid securities tradeable on the stock exchange. Thus, it doesn't allow them to hold Hedge Funds since hedge funds are illiquid and come with lock-in periods.   Then such ETFs rely on other strategies to get the job done. One strategy is the direct strategy in which the ETF will directly take positions in the underlying assets needed to provide the promised return by passive management or active management.   ETFs have brought several hedge fund strategies like long/short, market neutral, currency-carry, etc., strategy to the picture.   A long/short strategy is one in which the management has both long and short positions in securities, covering both sides and compensating for any losses.  Managers take a long position in undervalued stocks and a short position in overvalued stocks. A market-neutral strategy is similar to a long/short plan. A currency carry strategy is a strategy that uses a low-interest-rate currency to fund the trade in a high-interest-rate currency.  Similarly, ETFs will use a direct approach; a long/short ETF can directly short the underlying security, buy an inverse ETF, or use a swap agreement with banks. A currency-carry ETF might use currency-forward contracts.   2. Hedge Fund Replication  ETFs, replicate the returns of a hedge fund. Hedge funds are generally very secretive in their work; however, they report their returns to hedge fund indexing firms. The ETFs then try to replicate these returns with the help of the liquid assets at hand.  Hedge fund replication ETFs attempt to match hedge fund indexes as closely as possible with liquid assets. Liquid assets include things like stocks and bonds, although other ETFs with broad equities or bond exposure is more common.   These ETFs use complex mathematical and statistical tools to replicate such returns. Naturally, since ETFs are more transparent and have to report their holdings daily, the strategy is out in the open!  IM DBI Hedge Strategy ETF and the IM DBI Managed Futures Strategy ETF are some examples of Hedge Fund Replicating ETFs listed in the European markets.  3. Copycat  The third way to replicate a hedge fund is to copy them completely! Hedge funds are by law bound to share their portfolio allocations on a quarterly lagged basis.   Copycat ETFs use this publicly available information to decode the hedge fund's assets and then base their securities on such assets. These are primarily liquid securities like bonds and stocks.   The largest Copycat ETF is the Motley Fool 100 Index ETF, with an AUM of $532.52 million.  Bottom line is that ETFs cannot fully be hedge funds but can very correctly replicate them.   In an interview given to Morningstar on the launch of ProShares Hedge Fund Replication ETF (HDG), Joanne Hill, Head of Institutional Investment Strategy (IIS) at ProShares, opined that 'the idea here is that you can take a broad-based index like HFRI, which it captures the performance statistics of about 95% of the assets of the hedge fund industry; it has 2000 hedge funds in it.   So, when you look at that, you can reduce the returns and risk features into six or more tradable factors. So, hedge fund replication seeks to capture these return and risk characteristics, but it does it in a way that you can move in and out, trade it, and see the factors – thus making it accessible to a wider group of investors than available.'  Thus, ETFs have successfully delivered the hedge fund experience to the common masses. FAQs What are the top three ETFs?  Ans. Vanguard is the issuer of The Vanguard Total Stock Market ETF (VTI). $271.6 billion in assets are being managed.  State Street Global Advisors is the issuer of the SPDR S&P 500 ETF (SPY). $373.3 billion in assets are being managed.  iShares is the issuer of The iShares Core MSCI EAFE ETF (IEFA).  Can an ETF be a hedge fund?  Ans. ETFs can function like hedge funds even though they cannot possess them. In summary, ETFs are able to implement a variety of well-liked hedge fund strategies, including long/short, market-neutral, currency-carry, merger arbitrage, etc.  What is the best ETF strategy?  Ans. The ETF trading strategies that are best for beginners include dollar-cost averaging, asset allocation, swing trading, sector rotation, short selling, seasonal patterns, and hedging.  Consult an expert advisor to get the right plan for you TALK TO AN EXPERT
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Top 8 risks associated with ETFs

Top 8 risks associated with ETFs

While you've seen how ETFs can be a good addition to your portfolio, there can be some risks associated with ETFs. Understanding any risks associated with your investment beforehand is always beneficial for you. Risks associated with ETFs Source: Freepik 1. Market risk   Often called systematic risk, this is the single most significant risk while investing in ETFs.   An ETF is a collection of its underlying securities. Thus, the movement of these securities in the stock market affects the ETF as well.   For instance, if an ETF is tracking the Sensex and it drops by 20%, nothing in the world can stop this ETF from also falling. No advantage of the ETF will harbor this fall but can cushion it, if not entirely prevent it.  2. 'See it before buying' risk  This type of risk is the second most significant risk associated with investing in ETFs. An investor should be very vigilant when choosing an ETF.   Given the current scenario wherein more than 7600 ETFs are trading in the stock markets worldwide, studying carefully and looking at its underlying assets before investing becomes a paramount prerequisite.  Several ETFs can be tracking the same sector but may vary considerably by their underlying assets.   For instance, an ETF tracking the pharmaceutical industry should follow next-gen pharma companies having innovation in R&D, along with a promising future.  Such an ETF will have a higher return compared to an ETF tracking the pharma sector (but not tracking such high-potential companies).   Hence, 'judging a book by its cover' risk becomes vital.  3. Counterparty risk  Counterparty risk is the probability that the counterparty in a transaction may not fulfill part of the deal and default on its obligations. An ETF can track the underlying index in two ways.   It holds the underlying securities   ETF swaps investor cash with a bank or financial institution for the index's performance.   The former is a physical ETF, and the latter is a synthetic ETF.   Both investments have a certain degree of counterparty risk, but the probability is minimal and somewhat higher in the second.   However, we must keep in mind that ETFs are extensively collateralized and safe.   4. Exotic-Exposure risk  As stated earlier, several types of ETFs are doing rounds in the market, including some very complex specialized ETFs like inverse ETFs and leveraged ETFs.   Such ETFs use complex strategies to invest money, which may not always pan out the way one hopes. Hence doing due diligence before investing in such exotic ETFs is indispensable.   Similar to ice cream, moving beyond traditional, plain, and time-tested flavors increases the risk of being left with a sour taste.  5. Shutdown risk  Several ETFs are floating on global markets, but the investors love not all; hence some close down! About 100 ETFs close down every year, thus leaving their investors high and dry.   When an ETF is closed down, the investors get compensation in cash after liquidating the fund's holdings. However, this isn't an enjoyable experience in general.   Improper tracking of records on the part of the fund can lead to several grievances and, most importantly, mental agony for the investor.  6. Hot-new-thing risk  ETFs launched with such pomp trick investors into subscribing to such ETFs without doing their due diligence. This risk needs to be countered by the investor's conscience.  One must thoroughly study the underlying assets and the tracking methodology without bias of the splendors advertising.   According to ETF.com, a rule of thumb is that the investment amount in an ETF should be inversely proportional to the press it gets.  7. Tax risk  ETFs can have different structures and strategies, resulting in differentiated tax liabilities.   Some ETFs may use an in-kind exchange mechanism and thus have lower capital gains tax liability than those that use complex derivatives to track the underlying index.   Therefore, this can hamper the investor's profits and tax non-tax liabilities. Unless an investor is entirely aware of the fund's work, they may be caught off-guard.  8. Trading risk  ETFs are listed on the stock markets and can be traded just like a regular stock; this comes with its own set of liquidity risks. An ETF might not be very liquid, thus casting a shadow over its trading ability; it's the first advantage.  An ETF having a small spread between bid prices is how to tackle this illiquidity problem. Some ETFs open with pomp and with time lose their sheen; thus, the illiquidity problem could set in.   Investors must vary of such ostentatious display by the ETFs - often called a Crowded- Trade risk but is related to trade ability risk.  ETFs deliver what they promise to deliver; reading the fine print is what differentiates an investor from a good investor FAQs What are the risks associated with ETFs? Here are some of the main risks associated with ETFs Market risk 'See it before buying' risk Counterparty risk Exotic-Exposure risk Shutdown risk Hot-new-thing risk Tax risk Trading risk Are ETFs riskier than funds? The degree of risk depends on the fund and ETF. Some are low-risk, medium, and high. It's best to consult a professional before investing. What are the pros of investing in ETFs? The benefits of investing in ETFs are: Lower expense ratiosDiversification (similar to mutual funds) Tax efficiency Easy to trade just like stocks What is the biggest risk associated with ETFs? The biggest risk is a Market risk. If you buy S&P 500 ETF and the S&P 500 goes down then the loss is inevitable. How to choose the best ETF in India? Here are some checkpoints to complete before choosing the best ETF in India: Liquidity: How easy is it to withdraw your money from any given ETF Expense Ratio: What is the cost of managing the ETF and how much percentage would you have to pay? Tracking errors in any ETFs Check past performances and returns of the ETFs you will be investing in Is ETFs worth investing? A fantastic way to vary your investment portfolio is with an ETF. Whenever you participate in the stock market, you have a finite amount of equity options Consult our expert to discuss the right plan for you. TALK TO AN EXPERT
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Ways to buy ETF in India

Ways to buy ETF in India

You have seen various aspects of ETFs now; you must focus your attention on how to buy ETFs.   ETFs are intangible and transactions cannot take place in a store or a supermarket. Hence, specialized processes are in place to buy ETFs. How to buy ETF in India?   1: Open a brokerage account This type of account can be used to buy and sell securities like stocks, ETFs, commodity derivatives, etc.  The broker acts as a custodian for all securities. He also serves as an intermediary between the stock market and the investor. Hence, having a brokerage account is a prerequisite, resulting in a hassle-free online process.  There are different types of brokerage accounts, depending on the investor and his goals. Some prominent types are as follows- Various brokerage services are available like   Fidelity  Merrill Edge   Zacks   Trade etc.   You must select a broker based on specific parameters-  Fees - An investor must look at the fee policy of the broker before opening a brokerage account.   Look at how the broker charges for administration, maintenance, and stock trading commissions.  Minimum deposits - Some brokers have a minimum balance condition for opening an account.   However, for ETFs, it's just the cost of one ETF share. Low or no minimums are desirable.  Types of securities - Not all brokers will allow all types of securities to be tradeable on their platform. Thus, looking at the types of assets that can be traded becomes vital.  Customer service - The responsiveness and grievance redressal mechanisms of the broker should also be studied.  Now that you have chosen a brokerage account, you must have a clear ETF investment strategy. There are thousands of ETFs available on the market.  The investor must be clear of his goals and invest in an ETF that fulfills such aspirations.   Stock ETFs offer more incredible growth but at the same time have high volatility and risk.   Bond ETFs are comparatively less risky and provide fewer returns.  Thus, the realization of a golden balance based on investors’ needs is necessary. As per investment management firm T. Rowe Price, the asset allocation for retirement based on the investor’s age should be AgeStocksBondsCash or Cash Equivalents20s to 30s90%-100%0-10%-40s80%-85%0-20%-50s65%-85%15%-35%-60s45%-65%30%-50%0-10%70+30%-50%40%-60%0-20% Once the investor has decided upon his investment strategy, they should focus on the ETFs. And should research the various types of ETFs available in the market. The investor should look into a couple of aspects like  Expense ratio - Expenses eat into the investor's profits: the lower the expense ratio, the better.   Also, an investor must look at the fees an ETF charges for maintaining the portfolio. In most cases, ETFs have low to nil fees compared to actively managed funds as ETFs generally trace an underlying index.   However, an investor must be vigilant when buying specialty ETFs.  Volume- ETF volume shows the trading ability of the ETF and, thus, the liquidity. Higher the volume, the lower the spread, and the higher the liquidity.  Underlying Holdings- Look at the underlying holdings of the ETF.   Performance- Look at the fund's past performance and compare that to its peers.   Market price- Ideally, an ETF should trade near its NAV. Investors should keep in mind the NAV before making any purchases.   2: Buying the ETF At the very outset, the investor must transfer funds into the brokerage account with which the purchase takes place.  After ensuring sufficient funds, the investor must search for the ETF ticker symbol and place the buy order. The investor also needs to mention the number of ETF shares he wishes to purchase.   Generally, trading ETF infractions is not possible.  Confirm the order. Sit back and relax. Once an investor purchases the shares, they also need to make an exit strategy to minimize losses (if any) or minimize capital gains taxes.  FAQs How to choose the best ETF in India? Here are some checkpoints to complete before choosing the best ETF in India: Liquidity: How easy is it to withdraw your money from any given ETF Expense Ratio: What is the cost of managing the ETF and how much percentage would you have to pay? Tracking errors in any ETFs Check past performances and returns of the ETFs you will be investing in Is ETFs worth investing in? A fantastic way to vary your investment portfolio is with an ETF. Whenever you participate in the stock market, you have a finite amount of equity options. What are some advantages of ETFs? Some of the biggest advantages of ETFs are: Diversification and global stock exposure Trading flexibility Low costs Transparency Tax efficiency Risk management Professional management What are some disadvantages of ETFs? Some of the biggest disadvantages of ETFs are: Additional charges like Hidden fees, trading fees, and operating fees Lack of liquidity Tracking errors lower interest yields. Consult an expert advisor to get the right plan TALK TO AN EXPERT
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ETFs vs Mutual Funds

ETFs vs Mutual Funds

ETFs are very similar to Mutual funds, but they are not mutual funds. It's just a matter of grasping the difference between ETF and mutual funds.  EduFund believes that understanding where each instrument makes the most sense, and the investor doesn't blindly follow the crowd and the trend. At the very outset, let's know why they are so similar before diving into their differences. Similarities between Exchange Traded Funds(ETF) and Mutual Funds (MF)  Both Exchange Traded Funds and Mutual Funds represent a basket of professionally-managed securities: stocks, bonds, currencies, commodities, real estate, etc.  The placement of these securities is done either thematically or otherwise, depending upon the type of mutual fund or the ETF you chose. Both offer various investment options and professional portfolio managers oversee the investments. Thus, saving your time and energy for research. ETFs and Mutual funds are highly diversified because of the basket of securities. Thus, they are less risky than investing in individual securities like stocks, bonds, commodities, currencies, etc. How does this help reduce risk? Imagine if you are holding a stock that is performing poorly, and thus your return will also be poor; perhaps you may lose money too. However, suppose you have an ETF or a mutual fund. In that case, this poor performance of that stock may be compensated for by the good or average performance of other stores and assets, which together will give you a better return than holding a single asset otherwise. Difference between ETF and mutual funds?  ETF trading happens on the stock exchange, just like a simple stock on the (NSE) or (BSE) in Indian markets, or it will be listed on the NYSE or the Nasdaq when trading in the USA. Mutual Funds are not listed on the stock markets; they must be purchased manually from the fund through your financial advisor or online brokers. Investing in ETFs is very simple, i.e., they can be sold or purchased at any point in time in the day, just like a stock. However, this happens only once during the day - after the market has closed for mutual funds.   The mutual fund company does this by buying or selling mutual funds based on the investor's instructions. This delay can be very costly if the market fluctuations are very dynamic. Straightforward and anytime trading of ETFs sounds cool, but not all ETFs are tradable, leading to illiquidity concerns. ETF purchases are made at the prevailing market price - typically near the NAV but not precisely the same. Generally, an investor purchases the mutual fund at the price of its NAV. Hence, most mutual funds allow automated transactions but ETFs do not due to price volatility.  ETFs have a lower expense ratio as compared the mutual funds.  The expense ratio is the fee you pay the manager for managing your securities. The reason is quite simple, ie: the trading of mutual funds, leaves a long paper trail, and thus the exchange of hands for this paperwork is more.   The paperwork translates to higher costs to the fund manager, and eventually to the investor.   On the contrary, ETFs are traded directly by the investor and thus naturally explain the lower charges.  Based on management, most of the ETFs are passively managed, whereas there are quite a few actively managed mutual funds, but there exist some mutual funds which are passively managed.  What is better?  Well, neither of the two is perfect! You can achieve diversity using any two options based on your goals.   Naturally, a portfolio balanced by combining both offers greater variety and lower risk. Notably, there is no reason this must be a tightrope walk situation.   Both, Mutual funds and ETFs can live together in a portfolio perfectly happily. FAQs What's riskier - ETFs or Mutual Funds? One thing that investors must understand is that the riskiness of a fund doesn't depend on the structure of the investment, but rather primarily on the underlying holdings. So, there is no reason to believe that one of these two investment options could inherently be riskier than the other. Why should one choose a mutual fund over an ETF? It's always great to have various options to choose from and that's what mutual funds provide to an investor. Mutual funds give an advantage of variety that ETFs can't. Are there any disadvantages of ETFs? Every coin has two sides. Although ETFs could be proved extremely fruitful in increasing your savings in the long run, they may also have a few drawbacks. Some of them include a higher trading fee, trading errors, potentially less diversification, etc. What is the main difference between ETF and a mutual fund?   ETFs are very similar to Mutual funds, but they are not mutual funds. ETF trading happens on the stock exchange, just like a simple stock on the (NSE) or (BSE) in Indian markets, or it will be listed on the NYSE or the Nasdaq when trading in the USA. Mutual Funds are not listed on the stock markets; they must be purchased manually from the fund through your financial advisor or online brokers.   Are ETFs safer than mutual funds?   Any investment has some element of risk attached to it. The risk of investing in an ETF or mutual fund varies based on the choice of the investor, no two mutual funds carry the same risk, and this applies to ETFs as well.  Which is better, an ETF or a mutual fund?   Well, neither of the two is perfect! You can achieve diversity using any two options based on your goals. Naturally, a portfolio balanced by combining both offers greater variety and lower risk. Notably, there is no reason this must be a tightrope walk situation.    What are the two key differences between ETFs and mutual funds?   ETF trading happens on the stock exchange, just like a simple stock on the (NSE) or (BSE) in Indian markets, or it will be listed on the NYSE or the Nasdaq when trading in the USA. Mutual Funds are not listed on the stock markets; they must be purchased manually from the fund through your financial advisor or online brokers.   Mutual funds are actively managed investment options, while ETFs are passively managed investment options.    Consult our expert advisor to get the right plan for you TAlk TO AN EXPERT
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