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All you Need to Understand about ETF Investment

dateKnowledge Centre Team dateJune 24, 2021 views192 Views
Exchange Traded Fund | Financial Planning | Saving and Investment Plan

Ever since their launch in the year 1993 in the USA, ETFs or Exchange Traded Funds have earned immense popularity worldwide. Exchange-Traded Funds (ETFs) in India were launched in 2002 by the Benchmark Mutual Funds, and the initial ETFs to be started in the country were the Nifty Benchmark Exchange-Traded Scheme (Nifty BeES). People looking to invest consider a variety of options such as saving plans, mutual funds, gold bonds, etc. ETF is also another option that may be considered. But is it worth?

What is an ETF?

ETF, commonly known as Exchange-Traded Funds, is a type of mutual fund. While many investors in the present times are cognizant of mutual funds and stocks, there are plenty of incertitudes when it comes to comprehending Exchange Traded Funds (ETFs). As a result, many investors believe in various myths regarding ETFs and further makes it difficult for even acquainted investors to understand and invest their funds.

Pros and Cons of Exchange Traded Fund

The ETFs collect funds from various investors and further hold a fund manager and a Net Asset Value similar to a mutual fund. Although, there are two prominent characteristics of an Exchange Traded Fund that make it different from mutual funds:

  • An Exchange Traded Fund (ETF) can be easily traded in a stock market similar to shares.
  • ETFs are passively regulated funds and normally follow an index. It has emerged as one of the most widespread sorts of passive investing in the country.

ETF (Exchange Traded Funds) are listed and registered on a stock exchange similar to other stocks. Investors can exchange them like, and the value of every unit of these Exchange Traded Funds is not defined by the Net Asset Value but through the prevailing supply and demand in the market. All an investor must do is open a trading and a Demat account to be qualified to trade in ETFs.

Learn how to invest in a mutual fund for getting a monthly income?

Benefits of Investing in ETFs

With the help of these Exchange Traded Funds (ETFs), investors can easily control and leverage the growth prospective of Sensex and Nifty. These ETFs hold the potential to take their revenue maximization to a whole new level.

They simulate the profits of underlying assets like gold, index, or bonds where investors can gain index-linked profits at a more subordinate cost. ETFs might further assist an investor in gaining a return on investment that nearly agrees to a provided index.

However, at the very time, considering Exchange Traded Funds are market-linked instruments, the yields are not warranted, and there can be a possibility of trivial modification in fund results as juxtaposed to those of index yields.

Mentioned below are some of the advantages of investing in ETFs:

1. ETFs are cost-effective

ETFs are an investment product that holds a more economical expense proportion than mutual funds, as ETFs are regarded as passive funds. Fund management expenses are moderate, which points to a more economical expense proportion, which can create incremental profits and might boost return on investments in the extended duration.

The expense of operation of Exchange Traded Funds is further lower due to marginal fund management fees. Also, the assistance expenses are close to zero because brokers practice client assistance. Hence fund regulatory charges run down for ETFs.

These are all the reasons ETFs are regarded as one of the most cost-efficient investments. When people invest through smaller sums, compounding gets linked with moderate fund management expenses, which enables them to boost the portfolio gains.

2. ETFs have complete transparency

After investing in Exchange Traded funds, you can monitor the fund NAV (Net Asset Value) at any moment during market operating hours. When examining an ETF investment, you can identify the NAV (Net Asset Value) value trade on the trading day.

This transparency is so far more dependable than the conventional open-ended mutual funds who do not rate their funds until the end of the trading day.

3. ETF investments are convenient

When compared to any other market instruments, investing in ETFs is more convenient. The main reason for this convenience is that it extends the flexibility of buying and selling funds quickly. Apart from this, you can further perform intraday deals through Exchange Traded Funds.

With ETFs, you ought not to fret about redemptions, as exchange trading solely points to the transfer of ETF units and does not move the Asset Under Management (AUM). Therefore, in the event of index Exchange Traded Funds, the tracking deviation can be moderate compared to index funds. Hence, they are regarded as a suitable and convenient investment option.

4. ETFs provide trading flexibility

Along with providing users with the choice of purchasing and selling funds at any point in time during market hours, ETFs can be exchanged intraday. This intraday trading means Exchange Traded Funds can be purchased and traded during the days when the stock markets are open.

Unlike the prices of shares that vary throughout the day based on the shifting intraday price of the underlying assets in the fund, the value of Exchange Traded Funds shares is constant during regular exchange hours.

Suppose you as an investor are looking to expand your investments and hedge against volatility rising out of international and national effects or obtain exposure to a particular market or industry. In that case, ETFs might be the absolute asset for your investment portfolio. Investing in Exchange Traded Funds is not at all risky as opposed to other classes of equity instruments.

Understand the difference between portfolio management and financial planning.

ETF investors can comprehend within minutes how much they spent to purchase the ETF units and how much amount they obtained after trading. With the help of ETFs or Exchange Traded Funds, the creation of wealth over an extended time becomes more comfortable as they proffer transparency, flexibility, and diversification.

With the freedom of purchasing or trading ETF units at any point in time on stock exchanges just like shares and any other stock. Investing in Exchange Traded Funds is not just suitable for initial-time investors who are presently at the outset of their investment crusade but further acts as a great long-term strategy for well-established investors.

Saving Plans as an Alternative to Exchange Traded Funds

Investing in stock markets is risky. If you want safe avenues for investing, you may consider various saving plans that will help you achieve your financial goals. From planning your retirement to sending off your kids abroad for their higher education, saving plans can be your ultimate investment tool. Canara HSBC Oriental Bank of Commerce Life Insurance has a variety of saving plans that you can choose from:

1. Invest 4G Unit-linked Insurance Plan

ULIPs are a combination of investment and insurance. Invest 4G plan provides life insurance cover to help you protect your family in case of your unfortunate demise. You can customise your goals as per the changing life stages and requirements. It also offers Portfolio Management Options that give you complete control over your savings and insurance needs.

Learn more about Invest 4G.

2. Guaranteed Savings Plan

Guaranteed Savings Plan offers guaranteed benefits along with the flexibility to choose your savings horizon. It provides life cover for the entire term while you pay a premium only for a limited period. Customize your savings horizon to your important financial goals by choosing from multiple policy term options to help you select the best-suited policy term which is closely aligned to your financial goals.

3. Guaranteed Income4Life Plan

It is a highly customizable life insurance savings cum protection plan that offers guaranteed benefits as well as regular income to take care of both long-term and short-term financial goals. Whether it is lifelong protection for you and your spouse or fulfilling your child’s education needs, preparing you for early retirement, or giving you that extra income to make sure every promise is fulfilled; Guaranteed Income4Life plan helps you cover each of them.

Choose and buy the best savings plan as per your risk appetite. Remember to create a financial plan before investing in a savings plan. It will help you understand your goals and your financial affordability. Figure out your future expenses by taking inflation into account when you buy a savings plan.

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How Savings Plans by Canara Help You?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits.

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What is saving plan?

A savings plan is likely to be different for everyone depending on the financial goal, risk profile, returns, and investment horizon. If you are young and want to save for your retirement, ULIPs like Invest 4G or Titanium Plus plan would be the best option. You are likely to create a large corpus by your retirement through market-linked returns. If capital protection is your aim, then traditional insurance plans such as Guaranteed Money Saving Plan should be suitable for you.

How much money should you put in savings each month?

The amount that should be invested in a savings plan each month depends on the income, existing financial obligations and the long-term financial goal. If you have a steady income, you should save at least 20% of your monthly income. It is not necessary to invest your entire money into a savings scheme as investments should be diversified. Ideally, you should aim to have a financial buffer of over 10 times of your annual income.

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The Invest 4G plan with its multiple investment options and various portfolio management strategies for capital protection is an ideal saving plan for retirement.

Saving plan for future

The Smart Goals plan with its unique features such as modification of the sum assured partial withdrawal and fund switch can help you plan for your long-term financial goals.

Saving plan for girl child

The Future Smart unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the ideal savings plan for the girl child.

Where should I invest my money?

You should spread your investments across financial instruments. However, having a suitable savings plan in your portfolio is extremely important. It ensures financial stability and also helps in fulfilling short, medium and long-term monetary goals.

What is a good age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the capital gets adequate time multiply. Even a small amount invested for a long time can give substantial returns due to compounding.

Tax Saving Investment for retired mother

Savings plans are tax-efficient investment instruments. Samridh Bhavishya traditional savings scheme designed to ensure regular income after retirement is the best savings plan for retired mothers.

Should you use a savings plan for retirement planning?

Yes. Retirement planning is one of the most important financial decisions of our lives. Saving plans offer a host of features that may help you build your retirement corpus. Some of the saving plans like Guaranteed Income4Life offer guaranteed returns at policy maturity. Such returns can act as a regular income stream even after your retirement to help you stay financially stable.

Are saving plans beneficial for managing unexpected expenses?

Yes. Best saving plans in India offer partial withdrawal system that can be utilized during your rainy days. Being financially prepared to tackle such odds will help you manage any unforeseen expenses in a smooth manner.

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Saving plans are known for helping us achieve our financial goals. Best saving plans allow you to grow your wealth while providing life cover. Saving and investment plans are also beneficial for tax planning. Premiums of savings cum protection plans come with tax benefit under Section 80C of the Income Tax Act. Moreover, proceeds received upon the death of the policyholder or upon the maturity of the policy are tax free under Section 10 10(D).

What is the right age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the appreciation in capital is significant. Even a small amount invested for a long time can give substantial returns due to compounding.

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How a savings plan can help in building your child’s education fund?

Saving plans help in building wealth over time against the investments that you make. Choose the best savings plan to build an education fund for your child. The best saving plan for kids offered by Canara HSBC Oriental Bank of Commerce Life Insurance eases the stress of planning your child's future by providing a lump-sum payout on the investment.

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How Savings Plans by Canara HSBC Oriental Bank of Commerce Life Insurance can help you?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits.

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