Is Nifty ETF a Good Investment Option For You?

The reason we invest some portion of our monthly income in several financial instruments is mainly because we aspire to improve our current financial condition and attain future financial stability. Also, investing regularly might even help someone build a decent corpus over time. But accumulating wealth is a long journey, and everyone’s journey has a unique financial goal, which they wish to achieve through smart investments. It is usually advisable for investors to first identify their financial goal and keep it aligned with factors such as their age, investment horizon and risk appetite while planning their investments. Mutual fund investments can be an ideal way for someone who wants to stay invested for a long period of time. They can prove to the investment tool, which can help average investors beat inflation.

Over a period of time, exchange traded funds or ETFs have gained wider acceptance as financial instruments among seasoned as well as new age investors. They are the type of mutual fund you invest in, to diversify your portfolio and give it some liquidity. 

What are Exchange Traded Funds?

In SEBI’s own words, An ETF – “is an open ended scheme which replicates/tracks the particular index. Of the total assets, this fund must invest a minimum of 95 per cent in securities of a particular index (which is being replicated or tracked)”.

To put it in simple words, an exchange traded fund (ETF) is somewhat similar to an index mutual fund because it follows a particular index, for example, the gold, real estate, SENSEX etc. An ETF is a passively managed fund. Today we are going to discuss Nifty ETFs and understand if they can be a good investment option for investors.

What is Nifty ETF?

Nifty ETFs are marketable security which can be bought/sold and traded just like any other company stock throughout the day at an exchange. These exchange traded funds track the underlying index as their benchmark, which in this case is NIFTY. 

If investing in equity markets is something that you look forward to, you can consider investing in a Nifty ETF fund. Nifty ETF fund is an open ended scheme mimicking Nifty index. The investment objective of Nifty ETFs is to closely resemble to the returns of the Nifty index. However, there is no guarantee that the Nifty ETF will always live up to its expectations.

Here are a few reasons why Nifty ETF can be a good investment option for you:

  • Nifty ETFs usually offer diversification as they hold a basket of securities corresponding to the Nifty index.
  • Nifty ETFs are passively managed funds. Passive fund management means that the investor doesn’t have to keep track of every single investment ETF he/she owns. It is the job of the fund manager to make sure that the portfolio resembles the benchmark index.
  • When it comes to taxation, Nifty ETFs are treated just like any other equity oriented funds.
  • Nifty ETF offers you similar intraday pricing; the same which you get when trading stocks.

You can invest in Nifty ETF funds via two payment options – either through SIP or Lump sum

SIP: Systematic Investment Plan or SIP is a systematic approach where you can invest at regular intervals in a simple and hassle free manner. All an investor needs to do is instruct their bank and every month on a predetermined date, a fixed amount is debited from their bank and transferred to Nifty ETF fund. This systematic investment approach might inculcate the discipline of investing regularly among investors.

Lump sum: You can also invest in a Nifty ETF fund through lump sum payment. If you have surplus money parked with you which you wish to invest, you can opt for a lump sum payment. When you invest a lump sum, you are paying the entire investment amount at the beginning of the investment cycle.

If you are someone who is new to the world of investing, relax, it is easier than you think and gets simpler once you understand the basics. Having a defined investment objective and a financial goal might help investors in identifying an investment strategy and selecting a plan that shares a similar investment objective. Remember that in order to understand mutual fund investments in a better way, it’s going to take some time. Wealth creation isn’t an overnight process and the same applies when it comes to gaining knowledge about investment tools like ETF.

We request you to research as much as possible and if needed, consult a financial advisor before investing in a Nifty ETF fund. Do not rush while making an investment decision. After all, it is your hard earned money which you are entrusting someone with, and it is better to be cent per cent sure before you go ahead with any investment decision.

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