What is an ETF?
ETFs, or Exchange Traded Funds, are similar to mutual funds or index funds, but you can buy and sell them on the stock exchange just like regular stocks. ETFs make it easy and affordable to reach your financial goals, whether you’re saving for retirement or building wealth.
Benefits of ETFs
Affordable
With lower costs than mutual funds, ETFs help you keep more of your money
Full Disclosure
You can track ETF holdings daily, as most ETFs disclose their portfolios regularly.
Instant Portfolio Balance
Go beyond individual stocks—own the whole market through index-based investing.
Freedom to Choose
Real-time trading on the exchange, just like stocks
Frequently Asked Questions
An Exchange-Traded Fund (ETF) is a pooled investment vehicle that holds a basket of securities like stocks, bonds, and commodities and trades on stock exchanges. ETFs combine the diversification benefits of mutual funds with the trading flexibility of individual stocks.
ETFs are designed to track the performance of a specific index, commodity, or asset class by investing in the same securities in identical proportions. They trade on exchanges like stocks throughout market hours, with prices fluctuating based on supply and demand.
Most ETFs are passively managed, meaning they aim to replicate the performance of a specific index rather than outperform it. However, some actively managed ETFs are also available where fund managers make strategic investment decisions.
The categories include:
- Equity ETFs: Track stock indices like Nifty 50, Sensex
- Gold ETFs: Track domestic gold prices
- Silver ETFs: Track silver prices
- Debt ETFs: Invest in bonds and fixed-income securities
- Liquid ETFs: Invest in money market instruments
- Sector ETFs: Focus on specific industries (IT, Banking, Pharma)
- International ETFs: Provide exposure to global markets
- Smart Beta ETFs: Follow factor-based strategies like low volatility, momentum
Gold ETFs are commodity-based funds that invest in gold bullion and track domestic physical gold prices. Each unit typically represents 1 gram of 99.5% pure gold, allowing investors to gain gold exposure without physical ownership.
Liquid ETFs invest in highly liquid money market instruments like overnight repos, treasury bills, and commercial papers. They offer better returns than savings accounts while maintaining high liquidity and low risk.
To invest in ETFs, you need:
- A demat and a Trading account with Centrum to hold ETF units
- Funds in your Trading account
- Add ETF’s to your Watchlist
- Place buy orders during market hours like stocks
Yes, a demat account is mandatory for ETF investments as ETF units are held in electronic form, similar to stocks.
ETFs are purchased in units, so the minimum investment equals the price of 1 unit.
Yes, Centrum GalaxC offer SIP (Systematic Investment Plan) facilities for ETFs, allowing regular investments on daily, weekly, fortnightly or monthly basis.
ETF prices are determined by market demand and supply during trading hours. They generally trade close to their Net Asset Value (NAV), with real-time indicative NAV (iNAV) serving as a reference point.
Intraday Net Asset Value (iNAV) is the real-time fair value of an ETF calculated every 10-15 seconds during market hours. It helps investors determine if the ETF is trading at a premium or discount to its actual value.
Yes, ETFs can be bought and sold throughout market hours (9:15 AM to 3:30 PM).
ETF investment costs include:
- Brokerage charges: As per your brokerage plan
- Expense ratio: Annual management fee
- Securities Transaction Tax (STT): Government levy on transactions
- Stamp duty: 0.015% on buy transactions
- GST: 18% on brokerage and other charges
No, Securities Transaction Tax does not apply to Gold ETFs, Liquid ETFs, Gilt ETFs, and some international ETFs. Other ETFs are charged 0.001% on delivery trades and 0.025% on intraday trades.
Key benefits include:
- Diversification: Exposure to multiple securities
- Lower costs: Reduced expense ratios
- Liquidity: Can be traded anytime during market hours
- Transparency: Holdings disclosed daily
- Flexibility: Various order types available
Yes, ETFs are considered suitable for beginners due to their diversification benefits, low costs, transparency, and ease of trading. Index ETFs are particularly recommended for new investors.
Smart Beta ETFs follow factor-based investment strategies beyond traditional market-cap weighting. They focus on factors like low volatility, quality, momentum, or value to potentially generate better risk-adjusted returns.
Yes, ETF units can be transferred between demat accounts like any other stock, either online (for same depository) or through delivery instruction slips.
ETF holders receive benefits from corporate actions like dividends, bonus issues, and stock splits proportionally. The fund house handles these automatically, and benefits are reflected in the ETF's NAV or distributed to unitholders.
