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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 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.    Connect with an expert advisor to get the right plan for you TALK TO AN EXPERT

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 profiteering 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 instruments.   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 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

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 which 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 which 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 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.   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

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

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

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 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.   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 - seeming 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.   Responding 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 longer run. In a monthly reset option, ETFs provide a return every month rather than daily – seeming 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.  Consult our expert advisor to discuss the right plan for you TALK TO AN EXPERT

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 ETFs strategies that act like Hedge funds  1. Direct approach  ETFs are highly liquid security 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

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

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.   Though 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 which 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

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

What is an ETF? How to choose the right ETF in India? Let's answer these questions in this short blog! ETFs had come a long way since 1993 when the United States launched the first ETF. Since then, ETFs have been a vehicle to grow investor wealth manifold. However, it is paramount that the investor should know how to choose the right ETF. He should base his choice upon various underlying qualities of the ETF.  Selection criteria for how to choose the right ETF 1. Fund size   Any investor must bear the fund size before investing in the ETF. Fund size means the Assets Under Management (AUM). A large AUM implies that many investors are interested in this ETF. The AUM can be a proxy of a soundly-managed fund. They also have higher liquidity, enabling the investor to offload his ETFs with comparative ease as and when the need arises. With a larger fund size, the fund is most likely profitable and is safe from liquidation danger.   2. Age of the ETF The age of the fund is usable as a proxy for the reliability of the fund. A fund that has been around for a considerable amount of time must have a proven track record. Newly launched ETFs generally have a lower trade volume, with no definite reason. There can be two reasons why an ETF has a low trade volume. The trade volume could be lower because it is relatively new or low because of weak demand. New and novice investors should stay vary of such ETFs. The test of time is the safest bet for a beginner.   3. Volume  The higher the ETF volume, the lower the bid price spread, and more is more demand for that ETF. This line sums up the entire game of the book. An investor must look at the volume of the ETF before investing. Analyzing and carefully studying the declining trend and then picking up the ETF is the way to march ahead.  4. Expenses The greatest thing about ETFs is that they cost less than traditional mutual funds. Minimizing costs is the best way to maximize returns. These are the costs that eat up an investor’s profit. The lower the costs, the better. An ETF charges an expense ratio for management; thus, this has to be minimal. So, comparing the expense ratio is a must. The broker charges the transaction cost; this also is a cost whilst trading in ETFs, and this also needs to be minimized.  5. Tracking difference  An ETF tracks the underlying index to the best of its capability. Some ETFs replicate the index entirely by adding all the securities in the exact proportion present in the index. For instance, if an ETF replicates the Sensex, it will have all the guards in the same ratio as the Sensex in its basket. On the other hand, some ETFs will sample some securities from the index and make an ETF. The aforementioned basketing is called a sampled strategy. Both these ETFs may either underperform or overperform their underlying index. The deviation in performance can be due to faulty replication or the expense ratio that eats into your potential gains.   For example: An ETF that has an expense ratio of 0.2% and tracks an index growing at 10%, your profits are automatically reduced to 10-0.2=9.8% compared to the index. Thus, tracking difference plays a crucial role in ETF selection. 6. Benchmark  Studying the underlying assets of an ETF helps gauge its performance of the ETF. Thus, the underlying benchmark is a gauge of its performance. From the diversification point of view, having a broad-based ETF is preferable. Taking a closer look at the underlying assets and their weights is also essential, as it will ensure that the ETF you have invested in suits your goal and investment strategy.   7. Structure of the ETF  Check whether the ETF is a physical ETF or a synthetic ETF.   Physical ETF: It holds the underlying assets or securities of the index, which the ETF tracks in similar or representative proportion according to the fund’s strategy.  Synthetic ETF: These ETFs seek to replicate the index using complex derivatives. For instance, an ETF tracking crude oil prices will not hold barrels of oil but will invest in oil futures. A counterparty would be responsible for delivering the return if oil reaches a specified price level.   A physical ETF is more transparent and accessible to understand than these synthetic ETFs but will protect from counterparty risks. However, synthetic ETFs provide better access to specific markets than physical ETFs. Choose wisely!  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? 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. Following the above steps and keeping in mind your investment strategy and goals is the way to go forward.  Consult an expert advisor to get the right plan TALK TO AN EXPERT

Nathan, widely known as ‘Nate,’ is often called the Father of Exchange Traded Funds(ETFs). He was the inventor of the first Exchange Traded Fund, thus leaving an indelible mark on the industry.   Nathan successfully developed an ETF after six years of hard work and toil. He launched the most successful ETF in 1993, i.e., the Standard & Poor’s Depository Receipt, better known as the Spider or SPY.   The number of ETFs has grown significantly since then. As of 2020, more than 700 Exchange Traded Funds are available globally.  Let’s now look at how the industry has grown over a while.   The total ETF assets grew almost ten times in 2010. ETFs have galloped the psychologically significant $10 trillion Assets Under Management (AUM) mark.   Assets Under Management is the total market value of investments that a person or an entity manages for the investors. To visualize this figure- India is a $3.1 trillion economy.   Thus, the AUM of ETFs worldwide is approximately more than thrice the size of the economy of India! According to BlackRock, Global Business Intelligence, the ETFs are slated to grow to a potential of $14 trillion by 2024.  The biggest ETF companies control most AUM in the ETF world. The biggest companies, according to the size of their AUMs, are as follows:   iShares: iShares is a subsidiary of BlackRock Inc., the global leader in assets management.  Vanguard  State Street Global Advisors, the asset management business of State Street Corp., issues State Street SPDR- ETFs.   Invesco: Invesco Ltd manages it.  Charles Schwab: The Charles Schwab Corp issues ETFs. ParameteriSharesVanguard  State Street SPDRInvescoCharles SchwabAssets Under Management$1.8 trillion$1.3 trillion$771.7 billion$260.2 billion$170.2 billionNumber of ETFs Offered37280  13921825Revenue$3.5 billion$45.0 billion$1.3 billion $764.4 million$125.3 million According to the 2021 Global ETF Investor Survey of the global ETF market, the United States of America represents over 70% of the Assets Under Management, followed by the European Union and Greater China (The Greater China area includes Taiwan, Hong Kong, Macau, and mainland China). Source - EduFund research team, 2021 Global ETF Investor Survey. The Assets Under Management of the Exchange-traded funds in the USA crossed $5 trillion in 2020 compared to a measly $102 billion in 2002. In India, Exchange Traded Funds have also gained popularity amongst investors. Even though the Indian market is small compared to the heavyweight Americas and Europe, it’s still gaining traction and has a promising future.   ETF assets under management have doubled from 1.54 lakh crore at the start of FY21 to 2.9 lakh crore at the end of FY21, according to SEBI reports. India has a long way to go before it can be considered a mature ETF market.  The majority of ETFs invest in stocks; however, investors have several options, including exposure to debt instruments, commodity derivatives, real estate, currencies, etc.   The ETFs can also have a combination of several asset classes. According to ETF Database, most ETFs have underlying asset exposure. Thus, ETFs have a bright future, have grown manifold, and continue to grow. Some factors that will make this instrument a promising proposition are that its investors are pretty active in the market and are very sensitive to cost.   According to the 2021 Global ETF Investor survey, ETF allocations continue to rise and shine despite the ongoing pandemic. The majority of the respondents in the research had exposure to active ETFs (An actively managed ETF is one that has a benchmark index), also, thematic ETFs are going mainstream. 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 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.    Consult an expert advisor to get the right plan for you.  TALK TO AN EXPERT

Before talking about the advantages of ETFs. Let's talk a bit about Mutual Funds. For several years, traditional Mutual Funds have provided investors with the ease of building a diversified portfolio without choosing single security at a time.  These funds have provided retail investors like you and me far-reaching diversification and these funds have provided retail (non-professional) investors with far-reaching diversification and specialized management at a relatively lower cost. Exchange-traded funds (ETFs) take these benefits to a whole new level. ETFs have several advantages associated with them. Let’s see how each of them pans out for our use. Advantages of ETFs ETFs on similar lines to Mutual Funds offer a wide range of diversification. The general tendency of investors is to get concentrated in any particular sector without having any requisite knowledge of that sector, which results in lesser realized gains than actual potential.   This psychological problem can be countered by investing in ETFs, managed professionally and diversified to minimize risk and maximize growth. Nowadays, ETFs are available in a variety of types and orientations covering all major asset classes and sectors.   Global ETFs, local market ETFs, Industry-specific ETFs, and market niches provide investors access to industries where it may be cumbersome to buy and sell individual stocks and bonds.  Diversification also leads to risk management as the concentration in a given sector without expertise is avoided. ETFs can be a great tool to hedge your portfolio against any untoward market runs.  ETFs typically are low-cost instruments compared to traditional mutual funds because of their very nature. While trading ETFs, fewer hands and minimal paperwork are required; naturally, the costs fall compared to selling mutual funds. Thus, the expense ratio for ETFs is lower than other such securities, hence leaving you with a more significant amount of total capital in return compared to others.   For instance, the Vanguard REIT Index Fund Investor Shares (VGSIX) has a redemption fee of 1% if held for less than one year compared to Vanguard REIT ETF (VNQ), which has the same portfolio and has no redemption fees.  ETFs are traded openly in the stock market and hence are liquid compared to mutual funds, which aren’t. Redeeming a mutual fund is a very tedious process and requires a lot of time, whereas ETF selling is easy at any point of the day.  Mutual fund settlement takes place only once a day after the market timings, and this delay can prove costly. Most ETFs are very transparent in their operations and disclose their holding almost daily, which helps the investor make sound decisions about holding the ETFs in their portfolio.   Active semi-transparent ETFs reveal their complete portfolio holdings monthly or quarterly with a lag. Moreover, ETFs are simple products that can be easily understood by a layman investor, unlike some complex financial products except some specialized ETFs like inverse and leveraged ETFs.   With the help of a single transaction, the investor can buy or sell a bunch of underlying securities without the hassle of purchasing each stake individually.  A commodity derivative market is a place where there is restricted access to a few people and institutional investors due to the high costs of owning them.   On the other hand, ETFs have enabled retail investors to be a part of this segment at low prices. Thus, your portfolio gets new exposures with the help of such ETFs.  ETFs also come with an added advantage of tax benefits compared to mutual funds. The tax benefits in the ETFs are due to the very working of the ETFs. The swap agreements between the fund and AP reduce the tax liability for the investors.   The capital gains tax on ETFs is due to selling the ETF, whereas, in a mutual fund, the tax liability is on the investor during the entire life of the holding.  There are several advantages to making ETFs a part of your investment portfolio. Besides rock-solid investments like equities, mutual funds, and derivatives, ETFs are a financial tool that should be part of your investing arsenal, which increases the firepower of your portfolio manifold! Disadvantages of ETFs Long-term venture capital firms may only have a time horizon of 10 to fifteen years, thus daily price fluctuations may not be beneficial to them. Some venture capitalists could trade often as a result of these hourly pricing delays. A transaction that costs at the end of each day might avoid irrational fears of damaging an investment goal that may be inspired by a substantial movement over a short period of time.  Diversity is less crucial because fewer shares make up the market index, which may cause investors to concentrate on big businesses in certain industries or foreign equities. Future growth prospects may be out of reach for ETF owners due to a lack of exposure to mid-and small-cap companies.  Expenses can be higher. Although many people compare trading ETFs to trading other types of funds, the costs are greater when comparing ETFs to buying a single stock. Although the actual commission paid to that broker may have been identical, the stock has no management fee. Additionally, specialty ETFs are considerably more likely to follow a lower traffic index as more of them are introduced. This might result in a significant bid/ask spread. If you invest in real stocks, you could receive a better offer.  Some ETFs provide lower interest yields. Some ETFs are ETFs that pay a dividend, but their yields might not be as high as those of owning a company or group of equities with a high yield. ETFs often come with reduced risks, but stocks can offer much higher dividend yields if a buyer is willing to assume the risk. Even if you can choose the company with the highest dividend yield, ETFs follow a wider range of securities, so the average return will be lower.  A leverage ETF is a type of fund that boosts the returns of an underlying index using debt and financial products. Some double- or triple-leveraged ETFs have the possibility of losing more than twice as much as the underlying index. These speculative investments kinds require careful consideration. The overall loss could increase quickly if the ETF is held for a long time.  FAQs Why ETF is not popular in India? Costs are affordable yet insufficient. Although ETFs have minimal prices worldwide, they are marginally greater in India. The charges increase even more when brokerage fees are included. Due to poor margins, not enough has been done to increase investor awareness of ETFs in India. Is ETF as a long-term plan good for India? ETFs are incredibly secure and a great choice for long-term investment. Experts believe that just because ETFs are balanced and combine the investments of several investors, they are less unstable than stocks and indexes and only slightly move in price. 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. 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