What exactly is an ETF?
ETF = Exchange Traded Fund.
It's a fund (collection of assets) that trades on a stock exchange like a regular stock.
Inside an ETF, there could be :-
- Stocks (ex: TCS, TECHM, Apple, Amazon, Tesla)
- Bonds (ex: U.S. Treasury bonds)
- Commodities (ex: gold, oil)
- Real Estate assets
- Currencies
An ETF is basically a way to own a piece of a lot of things at once instead of buying them one by one.
How does an ETF actually work?
1. Creation of the ETF :-
Big financial companies (like NIPPON, SBI, or BlackRock) build the ETF. They pick the assets to include.
2. Shares are issued :-
The ETF company slices the fund into shares that investors like you and me can buy.
3. Buying and selling :-
You can buy ETF shares anytime during normal market hours, just like buying a share of TCS, TECHM, WIPRO, Apple or Google.
4. Price of the ETF :-
The price goes up and down based on :-
- The value of the stuff inside the ETF (stocks, bonds, etc.)
- Supply and demand from buyers and sellers
5. Dividends and gains :-
If the stocks inside the ETF pay dividends, the ETF might pass them on to you.
If the value of the stocks goes up, the ETF’s share price usually rises too.
Types of ETFs
There are different kinds of ETFs depending on your goals :-
Stock ETFs :- Owns a group of stocks
Bond ETFs :- Owns bonds
Sector ETFs :- Focuses on one industry (tech, healthcare, etc.)
International ETFs :- Owns foreign stocks
Thematic ETFs :- Focuses on a trend (e.g., clean energy, AI)
Inverse or Leveraged ETFs :- Bets on market drops or uses leverage to amplify gains/losses
ETF investing means buying and holding Exchange Traded Funds (ETFs).
An ETF is like a basket that holds a bunch of different investments like stocks, bonds, or commodities all bundled together. Instead of buying each individual stock,
you can buy one ETF and instantly own tiny pieces of a lot of different assets.
How it works :-
1. You buy shares of an ETF through a stock exchange (like you would buy a stock).
2. The ETF itself holds many investments. For example, an S&P 500 ETF owns small slices of all 500 companies in the S&P 500.
3. The price of the ETF changes throughout the day as people buy and sell it.
4. You make (or lose) money based on how the overall investments inside the ETF perform — plus dividends if the ETF pays them.
5. You can sell your ETF shares anytime during the trading day, just like a stock.
Why people like ETFs :-
- Easy way to diversify (not putting all your eggs in one basket)
- Often low fees (cheaper than mutual funds)
- Simple to trade (buy/sell quickly)
- Available for almost any sector, country, or strategy you can imagine
Why do people invest in ETFs?
Diversification :- One purchase spreads your money across lots of assets.
Low fees :- Most ETFs are cheaper than mutual funds. (Expense ratios are often under 0.10%.)
Tax efficiency :- ETFs are often more tax-friendly than mutual funds.
Accessibility :- You don’t need a lot of money to start, you can buy just 1 share if you want.
Transparency :- Many ETFs publish what they own daily.
A Quick Example
Imagine you want to invest in INDIAN or U.S. tech companies but don't want to pick individual stocks.
You buy 1 share of a Tech ETF (like ABC).
ABC owns TCS, TECHM, Apple, Microsoft, Nvidia, etc.
If those companies' stock prices go up, ABC’s price goes up.
If TCS pays a dividend, ABC passes a piece of that to you.
If you want to sell your investment, you can do it instantly during market hours.
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