What are ETFs?

Exchange-traded funds (ETFs) are financial instruments that combine the attributes of both stocks and mutual funds. These versatile investment vehicles can be bought and sold on the stock exchanges, similar to individual stocks, throughout regular market hours. Simultaneously, ETFs expose investors to a diverse range of assets, including stocks, bonds, gold, and more.

In India, individuals can invest in ETFs on both the BSE and NSE.

Portfolio Diversification Through ETFs

In India, several ETFs track indexes such as Nifty 50, SENSEX, Nifty Smallcap, and more. You can combine these ETFs to create a comprehensive ETF portfolio or blend them with other assets to form a portfolio of ETFs. You can construct a well-diversified ETF portfolio by incorporating index ETFs, like a domestic index such as Nifty, a global index like NASDAQ, and safe-haven assets.

You can create a robust ETF portfolio by combining sectoral ETFs with individual stocks. Suppose you identify an industry poised for growth over the next 5 years. In this case, you can construct a portfolio with an ETF tracking the industry index and carefully selected stocks from that sector with anticipated strong performance. This approach enables a portion of your portfolio to yield returns closely aligned with the industry's performance while the other portion concentrates on growth stocks.

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