Diversification is crucial in every investor’s portfolio. It reduces risk and provides a safety net against market volatility. However, it takes time, knowledge, and effort to diversify with individual stocks. One has to monitor the market continuously, analyse the stock’s performance, make comparisons, and stay updated with market news and rumours that might affect their investment. This is where Nifty ETFs (exchange-traded funds) help.
What is Nifty ETF?
The full form of NIFTY is the National Stock Exchange FIFTY, and it serves as the benchmark index for the National Stock Exchange (NSE). Nifty ETFs track the performance of the Nifty index.
For example, Nifty 50 represents the top 50 stocks listed on the NSE. The fund managers construct the Nifty ETF portfolio to match the composition of the index. Thus, when investors buy a Nifty 50 ETF, they own a portion of a fund that holds the same stocks in the same proportion as the Nifty 50 index. The value of the Nifty ETF will appreciate or depreciate by approximately the same percentage as its underlying index.
Benefits of investing in Nifty ETFs
- Diversification– Nifty ETFs offer exposure to various stocks listed on the National Stock Exchange (NSE). This diversification helps spread risk, reducing the impact of individual stock price fluctuations.
- Easy on the pocket– Since Nifty ETFs are passively managed and replicate the index’s performance, they involveand lower management fees.
- Liquidity and flexibility– A Nifty ETF is traded on the stock exchange like regular stocks, providing high liquidity. Investors can buy or sell Nifty ETF shares anytime during market hours, offering greater flexibility in portfolio management.
- Transparency– Nifty ETFs provide transparent holdings information as portfolios are disclosed regularly.
- Real-time updates– Due to being listed and traded on the stock exchange, the net asset value (NAV) of Nifty ETFs is updated throughout the trading session. This real-time information helps investors get up-to-date market insights and make timely decisions.
How to buy a Nifty ETF?
First, set up trading and demat accounts. These accounts facilitate buying and selling ETFs on the stock exchange. Here is how to buy Nifty 50 ETF after creating trading and demat accounts:
- Research different Nifty 50 ETFs available. Compare their performance, expense ratios, portfolio holdings, and other relevant factors.
- Log in to your demat account that offers access to Nifty 50 ETFs.
- Search for the specific Nifty 50 ETF you wish to invest in and place a buy order. Enter the number of ETF units and submit the order.
- Double-check the order details, including the ETF name, quantity, and price. Confirm the transaction and your linked bank details to execute the purchase.
- Once the order is processed, the allotted Nifty 50 ETF units will reflect in your account. You can track your investment’s performance through your account on the respective platform/app.
With exposure to top-performing companies, Nifty ETFs bring diversification, cost-effectiveness, liquidity, and transparency to an investor’s portfolio. By setting up trading and Demat accounts, you can easily buy Nifty ETF units online through fund houses or reputable platforms. Whether you choose Nifty IT ETF, Nifty Healthcare ETF, Nifty Pharma ETF, or NIFTY India Consumption ETF, the options are diverse and cater to various investment preferences.
For a more personalised approach and guidance, it is advisable to consult a financial advisor. Their valuable insights can help you invest as per your age, goals, risk appetite, and financial situation.