An Exchange Traded Fund (ETF) is like a basket that contains shares, bonds, etc. and can be traded on an exchange. It tracks an underlying index, either Nifty or Sensex, and holds assets in the same proportion as the index.
Looking to invest in ETFs? Here are some tips that could make your investments work for you –
- An ETF fund could give good returns, but you as an investor should remember that not all investments provide positive returns. Hence, you should restrict your investment using limit orders where instead of waiting for a huge profit or recovery from a bad loss, the investment will be transacted at a good reasonable price that will benefit and save you from a loss. You need to set the limit on the order, and the rest will be taken care of.
- It is advisable to begin trading a few minutes after the market has opened or before the market will close of the day. These are the periods when there is comparatively more volatility in the market. Following this advice could be beneficial in knowing the true value of stocks.
- If you are not sure of the trade, you should seek professional help from the fund manager before investing big time. Essentially, an ETF is a market-based investment, and all market-based investments are subject to market risk. Any fluctuation in the market will impact an ETF, and though it is a diversified portfolio, there cannot be an assurance that it won’t incur a loss.
- Always watch out for spread; a spread is a gap between a bid price and an ask price, where the bid price is the price on which investors are willing to buy while the asking price is the price on which investors are willing to sell. The difference between bid and ask is spread, which widens or narrows down according to market conditions. The transaction should be based on this spread as it determines the profit and loss of the investment.
These are some of the best ETF trading tips; however, if you are trading in an ETF for the long term, you should keep in mind its taxation benefits, brokerage charges, transparency of the trade executed by the portfolio manager and returns on investment promised by brokerage firms.
To make your ETF investments simpler and to explore more stock and mutual fund investment options, you could also reach out to a financial expert to curate bespoke financial plans that are in line with your risk tolerance, investment goals and horizon.