Exchange-traded funds or ETFs, types of investment funds, are similar in many ways to mutual funds, except that ETFs are bought and sold throughout the day on stock exchanges. On the other hand, mutual funds are bought and sold based on their price at day's end.
ETFs involve a collection of securities—such as stocks—that often tracks an underlying index. They are linked to the indices which are quite diversified, making them less susceptible to volatility, over and above the volatility seen by the underlying index.
According to Prateek Mehta, co-founder and CBO, Scripbox, ETFs can be bought or sold anytime during market hours at a price close to the actual NAV of the scheme and thereby it gives investors the opportunity to benefit from intraday movements as well.
"Investors who do not wish to evaluate whether funds are underperforming or outperforming the market may find ETFs or index funds as a good investment opportunity," he believes.
Also, an investor who has an inclination that a specific segment will do well but does not know enough to pick winners in that segment may find ETFs or index funds as a good option.
"In the Indian space, actively managed funds have given better returns over most time periods. So, ETFs tend to be a viable option for those who either do not have an advisor to figure investment options for themselves or do not have the time and energy to invest in the activity of investing," Mehta opines.
Chintan Haria, head- product development & strategy, ICICI Prudential AMC, believes that ETFs in India is currently in a nascent stage. However, they hold encouraging future prospects.
"The journey is likely to be akin to developed global markets, where passive products progressed from plain vanilla products replicating benchmark indices to factor-based (single or multi-factor) and geographically based offerings. It is likely that we are in the early days of the proliferation of smart beta ETFs in India," he elaborates.
In general, over the last few years, investors are increasingly warming up to the concept of ETF. Investors have started to realise the potential held by ETFs investment and how it can complement other investments in the pursuit of long term wealth creation.
On a five-year basis, as Haria says, the ETF assets have registered a growth of nearly 90 percent, surpassing the Rs 2 lakh crore mark.
"As investor awareness about ETFs improves, there will be increased acceptability among the masses, which is likely to drive the segment higher," adds Haria.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
(Edited by : Jomy)