What is Nifty ETF

There are many various categories of mutual fund in India. Mutual funds are categories into 5 broad categories – Equity, debt, hybrid, solution oriented and others. A mutual fund company (AMC) can float two types of mutual funds – 1) Actively managed mutual fund schemes which can be bought through mutual fund distributors or online from the AMC website 2) ETF, known as exchange traded funds are also a type of mutual fund which can only be bought through the stock exchange platforms.

Basic Characteristics of ETFs

ETF is an instrument which invests in the basket of securities that reflects the composition of a market index, like Sensex, Nifty, Bank Nifty, CNX Midcap, Nifty CPSE etc. ETFs are managed by Asset Management Companies (AMCs) and following is the basic characteristics of an ETF.

ETFs combine the characteristics of mutual fund and shares in one product. Investors can buy or sell ETF units just like they can buy or sell units of mutual fund schemes. However, ETFs can be bought or sold only in stock exchanges. Therefore, to invest in an ETF, investors need to have a demat account and trading account.

An ETF aim to replicate an index. The ETF manager aims to track the index as closely as possible and aims to replicate the index returns.

The cost (total expense ratio) of an ETF is much lower than actively managed funds.

What is NIFTY ETF?

By NIFTY ETF we generally mean Nifty 50 ETF which invests in the stocks of 50 largest Indian companies by market capitalization. NIFTY ETF or NIFTY 50 ETF replicates and tracks the NIFTY 50 Index.

While NIFTY 50 ETF is similar to equity mutual fund in many ways, there is a fundamental difference in the objectives of NIFTY 50 ETF fund and actively managed mutual fund. While actively managed funds aim to generate alpha by outperforming the market benchmark, NIFTY 50 ETF aims to track and replicate the NIFTY 50 returns.

What is Nifty 50?

Nifty 50 is commonly referred to as Nifty. It is the benchmark index of the 50 largest companies by market capitalization listed on the National Stock Exchange. Many equity mutual funds have Nifty 50 as their benchmark or additional benchmark. Nifty 50 or simply Nifty ETF is probably the most popular ETF.

Nifty 50 is the leading stock market index in India. Nifty 50 represents more than 65% of the full market capitalization of all stocks listed on the National Stock Exchange.

Performance of Nifty 50

Over the past 10 years, Nifty 50 has given 13.72% annualized returns. An amount of Rs 1 Lakh invested 10 years back would now be Rs 3.62 Lakhs (source: www.advisorkhoj.com returns as on November 19, 2021)

Benefits of Nifty 50 ETF

Nifty ETF is diversified investments as it has exposure to top 50 stocks. A diversified investment lowers downside risk when the markets are volatile.

Nifty ETF companies are mostly market leader in their respective industry segments.

Unlike actively managed mutual funds which are generally overweight or underweight on certain stocks or companies, Nifty ETF funds do not do this, as it replicates the percentage weightage of each company as it is in NIFTY index.

Nifty 50 ETF or Nifty ETF funds are low cost investments as the expenses ratio of NIFTY ETF is quite low compared to actively managed equity mutual fund schemes. Therefore, lower costs can translate into higher returns due to compounding effect in the long term.

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