Introduction
Many investors new to equities often wonder how to go about the whole process – that is how to go about the right investment path. The attraction towards equity investment lies in the prospect of beating inflation and reap returns over the long-term. Needless to say, achieving all our goals require some amount of exposure to equities, be it in the form of mutual funds, direct stocks or a combination of both.
Investing in ETFs
However, if you are new to equities and want to make investments in stocks directly, then making a decision for the right company is not an easy task. One must understand aspects like business prospects, company financials, market conditions, industry dynamics, and many more. This is where NiftyETF or Exchange Traded Funds come into the picture. An ETF that tracks a particular index is traded on the indices just like a stock but is offered by a mutual fund house. An investor can buy or sell ETF units from the exchange during market hours.
Major Benefits of Nifty50 Exchange Traded Funds (ETFs)
Those who are looking to invest in Nifty50ETFs can reap a host of benefits. These include the following:
- Exposure to a diversified basket of blue-chip stocks
The Nifty50 index consists of the largest Indian companies in terms of market capitalisation. Owing to this, investing in a Nifty50 ETFs offers excellent diversification across sectors and stocks for a retail investor as it keeps replicating the index.
A diversified portfolio ensures that it reduces the risks of an investor which is not the case when investing in a direct single stock as it can get impacted by market upheavals than a basket of companies. The returns from Nifty50 ETFs are also higher. The only requirement is that one has to have a demat account to be able to continue investing in ETFs.
- Very low cost of investing in ETFs than other investment tools
Investing in Nifty50 ETFs is comparatively low than other investment tools. Since the ETFs tracks the Nifty50 ETFs in a passive manner, costs are low. This is also because there is either somewhat limited or no churn within the constituents of the index. Also, what funds charge or the basis points is anywhere between 2 and 5. All of these make investing in ETFs much more affordable than other forms of investment tools.
- Suitable for those looking to invest in small amounts
For a new investor, investing in direct stocks or equities through Nifty50 might become way more expensive as shares of some companies can be too pricey in absolute terms. There are certain stocks within the Nifty basket that can range anywhere between Rs 15000 to Rs 30000 per share. For new investors, especially those at the beginning of their careers might find it difficult to trade in such high amounts.
For such investors, Nifty50 ETFs can come to the rescue and offer good exposure even in small amounts. An investor can choose to buy a unit of an ETF for just a few hundred rupees. For example, HDFC Index Fund Nifty 50 Plan Growth currently trades at around Rs 177. An investor can invest as little as Rs 500 to Rs 1000 in order to buy units of the Nifty50 ETFs from the exchange. A systematic investment every month is also possible.
- Opportunity to explore other equity-related options
By investing in Nifty50 ETFs, an investor can gradually start understanding market dynamics over a period of time without indulging in too many risks early in their investment tenure. Once an investor gets familiar with marker dynamics, he or she can choose to explore more stocks or even mutual funds depending upon goals, risk appetite, time horizon and other parameters.
Thus, it can be said that the Nifty50 ETF can turn out to be your first investment as you choose to begin your journey of financial investment.
