ETF Funds

Exchange-traded funds are passive funds, which aim to replicate a particular market index like Sensex, Nifty, Nifty Bank etc. These funds aim at minimizing the tracking error while replicating the index and thereby giving investors returns similar to the index which was being tracked. Let’s look at what is tracking error. In simple terms, it is the difference in returns of the ETF and that of the index. Investors who invest in ETFs can expect returns similar to the index being tracked. If they want to get higher returns then they can place their bet on active funds.

Benefits of Investing In ETFs:

A Diversified Pool of Securities. If you invest in shares of a particular company then you are putting all your eggs in one basket thereby subjecting to a higher degree of risk. On the other hand, investing in exchange-traded funds allow you to keep your finances spread over equities of different companies – diluting your risk significantly. 

One of the biggest advantage of ETFs over actively managed funds is the associated cost. The expense ratio of ETFs is much lower than the actively managed funds.  Another advantage of ETFs is their simplicity. There is no need to analyze past performance, understand the fund manager’s investment style or study the fund’s performance in up and down markets. Select an index and invest in a low cost ETF, which tracks that index. It’s Simple.