ETF - Exchange Trading Finance

1. Liquidity: Equity ETFs are designed to track the performance of a broad-market or a sectoral equity index, such as the Nifty 50, Sensex, Nifty Bank or Nifty Infrastructure. These funds provide low-cost exposure to the equity markets and are popular choices for long-term wealth creation through ETF investment in India.

2. Diversification: The top exchange-traded funds offer instant diversification across several assets. Depending on the ETF, you can access different stocks, fixed-income securities or commodities.

3. Passive Investing: ETFs primarily track different market indices. This makes them suitable for investors who prefer passive investment strategies instead of actively managed funds.

4. Cost Efficiency: ETF funds in India are cost-efficient because they are passively managed. They have lower expense ratios than actively managed mutual funds.

1. Equity ETFs: Equity ETFs are designed to track the performance of a broad-market or a sectoral equity index, such as the Nifty 50, Sensex, Nifty Bank or Nifty Infrastructure. These funds provide low-cost exposure to the equity markets and are popular choices for long-term wealth creation through ETF investment in India.

2. Debt ETFs: Debt ETFs, also known as fixed-income ETFs, track the performance of debt indices like the NIFTY 1 D rate Index, NIFTY 4-8 yr G-Sec Index or Nifty 8-13 yr G-Sec Index. Investing in the top exchange-traded funds from this segment could be suitable if you are risk-averse and are looking for stable returns, liquidity and diversification.

3. Commodity ETFs: Commodity ETFs track the performance of physical commodities like gold and silver. These funds enable you to capitalise on the price movements of these precious metals without directly owning them. Gold exchange-traded funds, especially, are the most popular among the list of ETFs in India.

4. Global ETFs: Global ETFs track the performance of international indices like the NASDAQ 100 or HangSeng. These exchange-traded funds allow you to gain exposure to top international stocks and leverage their wealth-creation potential.

1. Market Risk: One of the most significant risks you need to be aware of is market risk. The value of an ETF today depends on the performance of the asset it tracks. For example, the value of an ETF unit will rise if the value of the underlying asset rises and vice versa. Market risk is particularly high in equity and commodity ETFs, where volatility can significantly impact returns.

2. liquidity: Although top ETF funds typically have high liquidity, there may be a few funds with low trading volumes. Illiquidity can make it difficult to buy or sell units at favourable prices or at the right time.

3. Tracking Error: Tracking error is the difference between the return of an ETF and the index it tracks. Even the best ETF funds have tracking errors due to various factors like fund management costs, cash holdings and market inefficiencies. Funds with higher tracking errors typically produce returns that are much lower than their benchmark index.

4. Currency Risk: Currency risk is the risk of losing ETF investment value due to fluctuations in currency exchange rates. This risk only affects exchange-traded funds that invest in international markets. Depending on the direction of the foreign exchange rate movement, the returns can either be favourable or unfavourable.

1. Tax on Dividend Income: Dividend income earned from any fund in the list of ETFs in India is included in your total annual income. It is taxed as per the income tax slab rate applicable to you.

2. Tax on Capital Gains: Although top ETF funds typically have high liquidity, there may be a few funds with low trading volumes. Illiquidity can make it difficult to buy or sell units at favourable prices or at the right time.