Exchange Traded Funds
- 4m0•
- 22 Feb 2023
What Is An ETF?
An ETF is a collection of securities that are traded on the stock exchange. These securities could be stocks, commodities, bonds or currencies. As they are listed on an exchange, ETFs trade like stocks and experience price changes as and when they are bought and sold. Assume a fund that has all the Sensex 30 stocks. Let’s call it the Sensex Fund. This fund, with its basket of 30 stocks, gives you the advantage of risk diversification. Trading in an ETF is just like buying or selling the Sensex Fund or any other Index Fund listed on the stock exchange. Since the Sensex Fund trades like a stock, its price fluctuates during market hours.
Returns Comparison Between ETFs And FD & Savings Account
You can earn from your idle money with ETFs. They have the potential to beat long term returns from Savings Accounts and Fixed Deposits. Here’s how they compare:
| Savings Account | Fixed Deposits | Nifty 50 | |
|---|---|---|---|
Annual Returns (as on July 5 2023) | 3-6% | 6-7.5% | 12.22% |
In 3 years, investment of Rs. 100,000 would become | Rs. 109,273 (Assuming 3%) | Rs. 119,102 (Assuming 6%) | Rs. 1,41,298 |
Risk | Low | Low | Moderate |
Investment Cost | No management costs | No management costs | Expense ratio of < 0.20% + Brokerage as per plan |
Early Withdrawal | Allowed without any penalty | Penalty on premature withdrawal | Allowed without exit load. Only cost is Brokerage |
Assumptions:
- Assuming return of 3% (Savings A/C), 6% (FD), 15.73% (Nifty 50). Taxation not considered.
- Kotak Securities current delivery brokerage rate < 0.40%
Top Performing ETFs
Let the numbers speak for themselves! Here are the top 3 ETFs with 5 year returns:
| Name | 5 year returns (As on 11th Sept 2023) | Benchmark name |
|---|---|---|
Motilal Oswal NASDAQ-100 ETF | 18.79% | NASDAQ index |
Motilal Oswal Nifty Midcap 100 ETF | 16.62% | Nifty Midcap 100 |
Nippon India ETF Nifty 50 Value 20 | 15.29% | Nifty 50 Value 20 |
How Liquid ETFs Perform In Comparison To Savings Account And FD?
Liquid ETF is a type of mutual fund which invests in very short-maturity debt securities.
| Parameter | Savings Account | Fixed Deposits | Liquid ETF |
|---|---|---|---|
Risk | Lowest | Lowest | Low |
Pre-tax returns | 3-6% | 6-7.5% | 5-6% |
Tax | No tax upto INR 10,000 interest as per income tax slab | 10% deducted at source | Same as debt mutual funds |
What Are The Benefits?
- ETFs based on broad market indices provide diversification to your investments.
- Buy and sell at a real time price.
- Ideal for retail investors – Buy single unit for as low as Rs.10
- Low expense ratios as one would not be paying entry and exit loads.
- Trading of ETFs on exchange provides flexibility and liquidity to your investments.
- Exchange-Traded Funds tend to replicate the performance of the underlying with least error ratio.
- ETF holdings are readily disclosed, making your investment highly transparent.
- Quick and convenient dealing through demat accounts.
- Offers the risk diversification of a mutual fund.
What Does Kotak Securities Offer?
At Kotak Securities, we offer you access to trade in equity, debt, commodity and international Exchange-Traded Funds.
Check the list of ETFs here : https://www.kotaksecurities.com/exchange-traded-funds-etf/
Here’s how you can invest:
- Invest through your mobile using our Kotak Neo (KST) application
- Call your dealer and place the order over the recorded phone line
- Login to Kotak Securities > Search for the ETF you want to invest > Buy
- Call 30305757 to place an order through Call and Trade.
Source: www.amfiindia.com
DISCLAIMER: Past performance is not indicative of future results. Securities mentioned are exemplary and not recommendatory
