The rapid growth of Indian equity markets since the Covid pandemic has led to a surge in retail investors entering the BSE through various investment avenues, including direct equity, mutual funds, and ETFs.
According to market veterans like Raamdeo Agarwal, chairman of Motilal Oswal Financial Services, the Indian markets are expected to double in five years and quadruple in ten.
In the current market environment, exchange-traded funds (ETFs) have emerged as an attractive investment option in India, especially for those looking to start small and build long-term wealth with limited capital. This write-up explores the key advantages of ETFs, including lower costs, effective risk management, and diversification, to help you make informed investment decisions.
ETFs are investment funds traded on stock exchanges, similar to individual stocks. They typically track an index, commodity, or a basket of assets, offering investors exposure to diverse sectors without requiring extensive research.
This unique feature makes ETFs ideal for beginners starting their investment journey. They also help manage overall investment risk efficiently, keeping it on the lower side.
Applying for a new demat account
Several leading brokerage firms in India, such as Zerodha, ICICI Direct, Kotak Securities, and HDFC Securities, offer ETF investment options. To invest in ETFs, you must first open a demat account with one of these firms. Many of them provide a digital platform for opening a Demat account online with minimal paperwork. When choosing a broker, ensure they offer access to a wide range of ETFs to suit your investment needs.
First, you need to understand your investment goals and aspirations. Once you have a clear strategy, you can choose from the many ETFs available. Some popular options include the Nippon India ETF Nifty Bank BeES, which has demonstrated strong performance in recent years. Another leading choice is the Mirae Asset NYSE FANG+ ETF, well recognised for its impressive returns.
How much to invest?
You can start investing in most ETFs with any amount that suits your financial capacity, even as little as ₹1,000. This low entry point allows you to purchase fractional units of an ETF, giving you the opportunity to diversify your investment even with a small amount.
Monitor your investments
Once you start investing, it is essential to regularly track and evaluate the performance of your ETF investments. Staying informed about market trends, global developments, and economic changes is equally important. Most leading brokerage firms offer resources and applications to help you efficiently monitor and manage your ETF portfolio.
Reach out to the customer support
It is also important to reach out to your brokerage firm's customer support team to clarify any doubts regarding your investments. Queries about charges, processing fees (if any), past returns, and ETF portfolio details can be addressed by the support team for quick resolutions and educational purposes. Staying informed and actively engaged is crucial to your investment journey.
Current trends and performance
Several leading ETFs have shown impressive growth over the past 12 to 15 months. For example, the CPSE ETF has delivered a return of approximately 13.80 percent, while the Nippon India ETF Nifty Bank BeES has yielded around 10.40 percent.
These figures highlight the potential of ETFs as a prudent investment option, particularly for investors seeking steady long-term wealth growth.
Start at the entry level
Starting your investment journey in ETFs with ₹1,000 is not only logical but also an excellent way to build a well-diversified portfolio. By understanding how ETFs work and the fundamentals of ETF investing—along with following the simple steps discussed above—you can make informed and strategic investment decisions aligned with your financial goals.
(By arrangement with livemint.com)
