The first thing one needs to know about an ETF is the fact that they are a type of mutual fund. ETFs are listed on the stock exchange and are traded like any other security listed on the exchange, in real time.
Knowing that ETFs are essentially another type of mutual fund, they contain within themselves many securities that mimic the composition of a market indices.
So essentially, traders can easily invest in stocks of their choice from the ETF portfolio, without needing to do the extensive research that usually comes with it. Since ETFs have a low expense ratio, they are extremely cost-effective investment options when compared to both stocks and other types of mutual funds.
Another benefit of ETFs is the fact that they also exist in the bond market. This is similar to any debt mutual fund as ETFs let investors have access to the debt asset class as well. So essentially, traders can also choose to invest in company bonds from an array available in a cost-effective manner.
Reasons to Invest in ETFs with a Free Demat Account
When it comes to investing in ETFs, there are many benefits of free demat account. Some of them are listed below:
1. Diversification
- Helps add diversification to an investor’s portfolio.
- Since ETF has a variety of assets under it, it helps reduce the risk of putting all the savings of a trader in one particular asset
- For those who have just stepped foot into the market, this can be very beneficial
- It can also help traders who have a limited budget for investing.
2. Cost Effective:
- ETFs are index funds, the fund manager does not have to choose what to buy
- This leads to lower management fees compared to other mutual funds
- ETFs, unlike other mutual funds also do not need any initial charges or exit fees making them extremely cost-effective.
3. Liquidity
- Since ETFs are traded on stock exchanges throughout the day, they provide flexibility to the trader
- Traders can choose to buy or sell ETFs at any point throughout the day
- With this liquidity, traders have the benefit of being able to access their funds quickly
- Because of the very same reason, ETFs also prove to be beneficial for traders who want to take advantage of market fluctuations.
4. Tax Efficiency
- Because of the way ETFs function, the chances of producing lower capital gain bonds taxes are higher when compared to other mutual funds.
- Since ETFs can be classified as pass-through entities, the capital gains for them become taxable only when an investor sells their shares.
5. Variety of Assets
- As already discussed, ETFs let investors access a variety of asset classes
- These include stocks, bonds, commodities, etc.
- With such variety, portfolio diversification also becomes easier
6. Transparency
- ETFs help traders access real-time pricing of an asset
- It also helps investors have full transparency into their underlying holdings
- This makes it easier for investors to keep track of their investments.
- Because of this transparency, traders or investors are well aware of what they are investing in.
7. Access to Unique Investment Opportunities
- ETFs offer access to a variety of assets like stocks, bonds, commodities, etc that are usually difficult to access.
- This helps increase investment opportunities for traders and investors, helping them further diversify their portfolios.
In Conclusion
There is a reason why ETFs have become so popular of late. With advantages like diversification to professional management, they make for a great way through which to invest in mutual funds.
However, like every other investment opportunity, it is important to consider all aspects and keep your investment goals and risk tolerance in mind before investing.
