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September 21, 2023

Looking to invest in ETFs? A brief overview of different types of ETFs

An Exchange Traded Fund (ETFs) is a mutual fund that is traded on an exchange. It is a basket of securities and can be bought and sold throughout the trading day. ETFs are largely passively managed, which means a manager isn’t actively choosing which stocks to buy and sell.

Simply put, when we go grocery shopping, individual items we buy are like stocks. Combo packs on the shelves are like Exchange Traded Fund; these can track an index, a commodity or an industry.

What are the different types of ETFs?

  • Index ETFs

An index ETF track the returns of the entire stock market index (for example, NIFTY-50). It does this by assembling a portfolio that replicates a market benchmark/index by investing in all of its securities or a representative sample of them. Some of the index ETFs available in India are SBI ETF NIFTY, UTI Sensex ETF and Kotak NIFTY ETF.

  • Bond ETFs  

Bond ETFs are a portfolio comprising government and corporate bonds. Some of the popular bond ETFs in India are Nippon ETF Liquid BeES, SBI-ETF 10Y Gilt, LIC G-Sec LTE Fund and Bharat Bond ETF.

  • Commodity ETFs

Commodity ETFs track the prices of crude oil, gold, silver and other valuable resources. For example, gold ETFs replicate the domestic price of physical gold. Kotak Gold ETF and ICICI Prudential Gold ETF are some examples of gold ETFs.

  • Currency ETFs

Currency ETFs mimic the changes in the value of various currencies, such as the Euro or US dollar. If you want exposure to foreign currency markets to diversify your portfolio, currency ETFs are for you. WisdomTree Dreyfus Indian Rupee ETF is a currency ETF available in India.

  • Sector and Industry ETFs 

Sector and Industry ETFs invest in specific sectors or industries such as technology, banking, energy, oil or gas stocks. Kotak NV 20 ETF and Kotak Banking ETF are some of the industry-specific ETFs in India.

  • Foreign market ETFs

Foreign market ETFs invest in international securities. They help investors invest in securities of global, regional or companies of specific countries, thereby diversifying the portfolio. Motilal Oswal NASDAQ 100 ETF, which invests in US stocks, and Nippon ETF Hang Seng BeES, which invests in Hong Kong stocks, are foreign market ETFs.

  • Asset class ETFs

Asset class ETFs invest in small-, medium- and large-cap stocks. They invest in portfolios of stocks according to market capitalization. Nippon India ETF, Nifty Midcap 150 and iShares MSCI India Small-Cap ETF are asset class ETFs.

ETFs could be a profitable option for you to create wealth in the long-term. If you are looking to invest in mutual funds in general and ETFs in particular, it is prudent to make investment decisions under expert guidance.

Reach out to one now to get started on your investment journey.

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