ETF Investing Free Course | Complete Exchange Traded Funds Knowledge | Share Market

Summary

This video explains the concept of Exchange-Traded Funds (ETFs) and how they work, using a case study of two friends, Ram and Shyam. Ram's investment in ETFs has led to substantial returns through a methodical approach of investing monthly. The video explores the mechanics of ETFs, how they reflect the movements of indices like Nifty 50, and the advantages of ETF investing over mutual funds. Different types of ETFs such as sector-specific, foreign, and gold ETFs are discussed. Viewers also learn about risk management strategies, investment techniques, and the potential for ETF-based wealth creation.

Takeaways

• 😀 ETFs are a great way to diversify investments without taking on too much risk, offering a variety of options like sector-specific and international ETFs.
• 😀 Ram invested in ETFs using a SIP approach, contributing Rs 15,000 every month and benefiting from the power of compounding over time.
• 😀 The Nifty 50 ETF offers exposure to the top 50 companies in India, and investing in it means your money is spread across these companies based on their market cap.
• 😀 You can buy ETFs like stocks, meaning you can track their prices throughout the day and decide when to buy based on market fluctuations.
• 😀 Investing in ETFs through SIP helps in averaging costs, as you buy more units when prices are lower, thus reducing the impact of market volatility.
• 😀 ETFs come in various forms, including those for specific sectors (like FMCG), commodities (gold and silver), and even international indices like Nasdaq.
• 😀 Unlike mutual funds, ETFs allow you to place limit orders and trade them throughout the day, providing more flexibility in pricing and timing.
• 😀 Lump sum investment in ETFs carries risks, as market fluctuations can lead to short-term losses, but it's crucial to time it correctly to minimize risks.
• 😀 Gold ETFs offer a way to invest in gold without buying physical gold, and their prices fluctuate based on the market value of gold, allowing small-scale investments.
• 😀 There are also debt ETFs like GILT and liquid ETFs, which focus on lower-risk investments such as government securities and provide steady returns over time.
• 😀 ETF investing is a suitable strategy for long-term investors looking to grow wealth with minimal risk, especially for those who understand how ETFs function and want to diversify their portfolio.

Q & A

What is an ETF, and how is it different from a stock?

An ETF (Exchange Traded Fund) is similar to a stock in that it can be bought or sold on a stock exchange during trading hours. However, unlike a stock that represents ownership in a single company, an ETF represents a diversified portfolio of assets, such as stocks, bonds, or commodities, often tracking an index like the Nifty 50.

What is the Nifty 50 ETF, and how does it work?

The Nifty 50 ETF is an ETF that tracks the performance of the Nifty 50 index, which consists of the top 50 companies listed on the National Stock Exchange (NSE) of India. By purchasing this ETF, an investor gets exposure to all 50 companies, providing diversification across various sectors.

Why did Ram choose to invest in ETFs instead of stocks or mutual funds?

Ram chose ETFs because they allow for diversified investment without taking on excessive risk. By investing in ETFs, he could reduce individual stock risk while gaining exposure to multiple companies within an index like the Nifty 50, which offered a more balanced investment approach.

How does the compounding effect work in ETF investments, according to the script?

The script highlights how Ram's Rs 15,000 monthly investment grew over time due to the power of compounding. Initially, it took 15 years to make the first crore, but as the compounding accelerated, subsequent crores were made faster — in 4 years, 3 years, 2 years, and even 1 year as his investments continued to grow.

What is the difference between ETFs and mutual funds?

One major difference between ETFs and mutual funds is that ETFs are traded on exchanges like stocks, so they can be bought or sold throughout the day. Mutual funds, on the other hand, only transact at the end of the trading day at the net asset value (NAV) price. ETFs also offer more transparency and flexibility compared to mutual funds.

How does one invest in ETFs using a Systematic Investment Plan (SIP)?

To invest in ETFs via SIP, an investor can choose an ETF (such as Nifty 50 ETF) and invest a fixed amount each month. The number of units purchased will vary depending on the ETF's price at the time. This approach averages the purchase cost, buying more units when the price is lower and fewer when it is higher.

What are some risks of lump sum investments in ETFs?

The main risk of lump sum investments in ETFs is that if the market is at a high point when the investment is made, the value of the investment may decrease if the market falls soon after. In such a scenario, investors might experience a loss in the short term. Timing the market can be difficult, so it’s essential to consider the market conditions before making large lump sum investments.

What types of ETFs are available in the market?

There are several types of ETFs available, including sector-specific ETFs (e.g., Nifty 50, FMCG), commodity ETFs (e.g., Gold, Silver), foreign ETFs (e.g., Nasdaq 100, Hang Seng), and even debt ETFs (e.g., GILT Bees, Liquid Bees). Each type of ETF targets a specific asset class or market segment.

How can an investor buy a foreign ETF, and what are some examples?

Investors can buy foreign ETFs, such as the Nasdaq 100 ETF or Hang Seng ETFs, to gain exposure to foreign markets and companies. For example, the Nasdaq 100 ETF allows investment in top US tech companies like Apple and Microsoft. Investors in India can buy these ETFs through their Demat accounts.

What are debt ETFs, and when should an investor consider them?

Debt ETFs, such as GILT Bees, invest in government securities and are low-risk investments compared to equity ETFs. These ETFs are suitable for conservative investors who seek steady returns without exposure to the stock market's volatility. They are ideal for individuals with surplus cash looking for stability rather than growth.