For Indian investors, there are a plethora of investment schemes to choose from. However, in order to draft and execute the right investment strategy investors need to first make a list of the short-term and long-term financial goals. When you exactly know how much wealth you want to create over the long term, it helps you understand the commitments and sacrifices you may have to make at this point of time in life. Those who believe in the idea of saving what is left after spending money have a tough time accumulating wealth. There is no secret recipe to building wealth. All you must do is make sure that you save and invest a portion of monthly income before spending. If you are interested in generating capital appreciation from investing and marketing schemes limited ones you need to first make sure that you have carried the desired risk appetite. A risk appetite is nothing but an investors ability to take a certain amount of risk with their finances with the hope of generating capital appreciation at some point of time in future. risk appetite of an individual may vary depending on their existing age, their current income and their current liabilities.
Mutual funds are described by market regulator SEBI as “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced.”
Several individuals who are new to investing mutual funds over direct equity investments as because mutual funds are known to carry a diversified portfolio. also, one does not need to have ended knowledge about financial markets in order to invest in mutual funds. Mutual Funds are professionally managed the fund manager is assigned the task to buy and sell securities in such a way that the scheme can beat its underlying benchmark and achieve its investment objective. Exchange traded funds are one of the most sought-after mutual funds because of the unique investment strategy.
Exchange Traded Funds or ETFs are passively managed funds that try to generate capital appreciation by tracking or replicating their underlying index. An exchange traded fund is an open-ended scheme which replicates/tracks the index. Of the total assets, this fund must invest a minimum of 95 per cent in securities of an index (which is being replicated or tracked). Since ETFs are passively managed funds, they carry a low expense ratio as compared to actively managed mutual funds.
How to invest in ETFs?
There are multiple ways in which you can buy or sell exchange traded funds. However before investing in this naturally management investors need to have the following two accounts:
- A trading accounts
- A DEMAT account
A trading account allows investors to buy and sell their exchange traded fund units whereas a DEMAT account is where the units that are held after being brought at the exchange. Yes, exchange traded funds can be bought and sold as like any other company share at the stock exchange. However, one cannot buy or sell exchange traded fund units without having a DEMAT account. In order to open a demat and trading account investors need to be KYC compliant. Know Your Customer is a standard procedure which all the investors must go through before investing in exchange traded funds. In order to be a KYC compliant individual investors need to submit photocopies of certain documents such as income proof, address proof, identity proof and a passport size photograph along with the KYC form filling in all the basic details like the name, age, gender, place of birth, address etc.