Diversify Your Portfolio With an ETF Investment.

ETFs or Exchange Traded funds are another investment options that can be invested into for exposure to a set of securities or index. ETF or Exchange traded fund as understood from the nomenclature are mutual funds that trade on the exchange similar to a stock on which it is listed at market-determined rates and can be bought and sold any time during market hours via demat accounts.

In comparison to equity and debt mutual fund schemes they are better in the sense as they carry:

i) Lower costs: An investor who buys or invests in an ETF does not have to shell out any advisory or management fee otherwise payable to mutual fund managers. Expense ratio can be as low as 5-10 basis points. 1 basis point is one-hundredth of a percentage point.

ii) Lower holding costs: Commodity ETFs are one of the popularly traded ETFs and as the physical transfer of the commodity does not take place there is lower holding cost.

ii) Minimum investment: 1 unit

iv) ETFs provide asset class specific returns and replicate the index as closely as possible.

v) Real time investment option available: Investment in ETFs is possible through demat account during market hours at nearly the real time prices as against the end of day price.

How are ETFs different from mutual funds?

ETFs which are primarily mutual funds or pooled assets show a degree of dissimilarity from each other. Here are the major points of differences:

Point of difference	Mutual funds	ETFs
Trading and settlement	Trade at net asset value calculated at the end of the trading day.	Trade at their current market price being listed on the exchanges.
Investment style	Mostly actively managed by Fund Managers.	Passively with the fund replicating the index.
Investment method	Mutual fund investment cannot be made directly i.e. involves an intermediary, filling up of forms etc.	Investment in ETF can be made directly from the open market.
Lock-in period	Mutual funds come with or without lock-in period during which investors cannot redeem their holding or can redeem by paying some penal sum or exit load (generally the limit imposed is of 90 days from the investment date)	No time limit on selling of the asset.
Expense ratio	Higher in Mutual funds of up to 2% as total expense ratio in case of active funds	0.05-1% of NAV

How to invest in an ETF?

To invest in an Exchange Traded Funds you need to be KYC compliant. For the KYC compliance, you need to produce the following documents:

• Proof of identity: Passport, Driving License, PAN Card
• Proof of Address: Passport, Utility Bill
• Bank Account Details: Bank Account Statement

After you are done with the KYC formalities, you need to apply for a demat account as ETFs need to be held in dematerialised form. Also, the trading account is needed to transact in them in real time.

Ways to invest in an ETF

• If investing through a broker, ensure that the broker is registered with the stock exchange.
• Now after you have tied up with the broker, you can trade in ETFs through the broker firm either on phone or can place the order online yourself.
• Investment in ETFs can also be made through the AMCs or Asset Management Company. In this investment route, investors would need to buy an ETF in 'creation unit' size or multiples thereof against their investment amount.