When planning to invest in markets, investors often find themselves in a dilemma of choosing whether to invest in stocks directly, or through Exchange Traded Funds (ETFs). Some investors may find direct stock investments interesting and exciting since there is more control over investment decisions, and they can track the stock prices over stock exchanges.
With the evolution of financial markets, people may find themselves flooded with several options for investing their savings. These include fixed/recurring deposits, mutual funds, government bonds, stocks, etc. Among these options, investing in benchmark indices may pose a transparent investing strategy to equity investors, as they will be exposed towards a pre-defined basket of stocks.
When it comes to investing in equity markets, retail investors often look at the movements of the benchmark indices - NSE Nifty 50, S&P BSE Sensex BSE 200, BSE Midcap Index, BSE Small Cap Index, Nifty 500, etc. This is because such indices may be considered indicators of financial markets.
Investors can choose from various mutual fund schemes depending on their financial goals, risk appetite, and investment horizon. Diversifying one's investment portfolio to achieve better stability in a volatile market is always advised. Besides equity and debt instruments, commodity funds help investors diversify their portfolios across different asset classes.
Commodity funds: Meaning
One may consider active and passive investment products when one plans to invest in financial markets. Active investment products are those where the investment portfolio is being managed actively, with the professional fund management team taking investment decisions after research and due diligence. The objective of an actively managed scheme is to generate alpha, i.e. returns over and above market benchmarks.
Exchange Traded Funds (ETFs) are passive investment instruments. They offer direct investment exposure to underlying indices or commodities like silver, gold etc. As per the guidelines of the Securities and Exchange Board of India (SEBI), an ETF must deploy at least 95% of its assets in securities of the underlying index.
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Mutual funds have emerged as a preferred investment option among retail investors due to the benefits of professional fund management and ease of investing. As a new investor, many people have this question in mind - how do mutual funds work? What do Asset Management Companies (AMCs) do with the small investments that individuals provide?
