From asset allocation to sectoral diversification at lower costs, ETFs or Exchange Traded Funds offer several benefits to investors that can help them build wealth in the long term.
With an aim to educate investors about ETFs and their lesser known benefits, Economictimes.com conducted an exclusive Webinar session ‘Insight into ETFs’ in association with Mirae Asset Investment.
Swarup Mohanty, CEO, Mirae Asset Investment Managers (India) shared his insights about ETFs and what makes them the most attractive investment.for wealth creation.
“ETFs are an excellent tool for building strategic asset allocation which dominate your long term wealth creation process. ETFs try to replicate the benchmark and hence the risk of underperforming the benchmark is mitigated in general. This is one of the biggestET benefits of investing in these,” said Mohanty in the web session.
On choosing the right fund and strategy behind it, he suggested choosing a core and satellite portfolio.
“…ETFs can play an important role in deciding a core and satellite portfolio strategy. For instance, if you are an active investor, you can form your core portfolio into active funds and choose ETFs as part of your satellite process. You can also use ETFs tracking broad indices as part of your core portfolio and use active funds as satellites to provide a stronger portfolio,“ he added.
Further, he talked about the cost advantage offered by ETFs, and how investors can pick an ETF that aligns with their risk tolerance. He said ETFs are not only more cost effective but offer better tax treatment than index funds when it comes to redemption.
7 Benefits of investing in ETFs
- Simplicity of product
- Low cost
- Tradability feature
- Tax efficiency
- Focused exposure
- Global Investing
Besides the several benefits enumerated above, ETFs have the potential to offer higher returns compared to other asset classes such as fixed deposits, government securities and other tax saving instruments that offer fixed returns.
On factors that have made ETFs more acceptable to investors, Mohanty holds the view that: “The growth in ETFs can be witnessed in the last 5-6 years. One of the major factors which have contributed to this acceptability has been the government using ETFs as the preferred route for disinvestment, which has increased retail participation. ETFs are now being used by EPFOs and private PF Trusts to take exposure into the equity markets.”
Regulatory measures like categorisation of funds with benchmarking them against total return index variants have improved the performance of valuation significantly, he added.
The new set of investors who want to avoid the risk of underperformance in their portfolio can greatly benefit from investing in ETFs.
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