Exchange Traded Funds (ETFs) have grown tremendously in the last few years. As per the data available on the NSE website, there are over 174 ETFs as on June 30, 2023. An ETF is a passive form of investing that invests in a basket of securities that mostly tracks a certain index. It tries to mirror the return of the index it is tracking.
“Exchange-traded funds (ETFs) have grown tremendously in the last 5 odd years. There are over 174 ETFs; you can easily build a low-cost, globally diversified portfolio just with ETFs.” Nithin Kamath’s Zerodha tweeted.
But before you buy and sell ETFs, you should know a few things, tweeted Zerodha.
1)The trading volumes of ETFs are low for the first 15–30 mins after the market opens. So, it’s best to avoid buying and selling at market opening.
2)If you place a market order, your order may be executed at prices far away from the last traded price. So, always use limit orders.
3)During volatile market phases, ETFs can often trade at large premiums & discounts for a variety of reasons. So when you buy and sell ETFs, make sure the price is as close to the iNAV as possible.
4)Not all ETFs trade regularly. So if you are investing in an ETF, don’t just check the volume of a day; check the historical volumes as well.
5)If you invest in ETFs regularly, you can create a SIP, just like with mutual funds.
When it comes to taxation, different ETF types tend to be taxed differently. An ETF is taxed like mutual funds depending on its asset category. For example, a NIFTY 50 ETF will be taxed like an equity mutual fund, a 10-year G-Sec ETF will be taxed as a debt mutual fund. Capital gains from a net asset value (NAV) rise are regarded as long-term capital gains (LTCGs) in case the equity ETFs are held for more than 12 months.
Unlike mutual funds, ETFs can be bought and sold only through the stock exchanges. A Demat account is a must to trade in ETFs. Since they are passively managed, ETFs are cheaper and have a much lower expense ratio compared to actively-managed mutual funds.
Broking firm Zerodha has received final approval from capital markets regulator Sebi to set up an asset management company, its founder and CEO Nithin Kamath said on Friday.
“We just received the final approval for the @ZerodhaAMC we are building in partnership with @smallcaseHQ,” Kamath announced on the X platform.
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