Types of ETFs- Equity, Debt, Gold

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Types of ETFs- Equity, Debt, Commodity

If you're interested in investing but find traditional mutual funds or individual stocks a bit overwhelming, ETFs can be an excellent option. ETFs can help you diversify your portfolios, trade like stocks, and provide exposure to various asset classes. 

We'll explore the different categories of ETFs available, including Index Fund ETFs, Bond ETFs, Sector ETFs, Currency ETFs, Equity ETFs, and Commodity ETFs. Let's dive into each category and explore their characteristics.

Index Fund ETFs

Index fund ETFs are investment funds that aim to replicate the performance of a specific stock market index, like the Nifty 50, Nifty Bank, or BSE Sensex. These ETFs work by buying a diversified portfolio of stocks that closely match the composition of the index they track. Index fund ETFs aim to provide investors with a simple way to invest in a broad range of companies and achieve returns similar to the overall market.

Examples: Nippon India ETF Nifty BeES, ICICI Prudential Nifty ETF

Bond ETFs

Bonds are essentially loans made to governments or companies; they pay interest over a specific period. Bond ETFs allow you to invest in a pool of different types of bonds, like government or corporate bonds, without having to buy them individually.

When you invest in a Bond ETF, you're basically lending money to governments or companies, and in return, you receive regular interest payments. The value of your investment can also change based on the overall bond market conditions.

Examples: ICICI Prudential Bharat Bond ETF, Edelweiss ETF - Nifty PSU Bond Plus SDL

Sector ETFs

Sector ETFs concentrate their investments in specific sectors or industries of the economy, such as information technology, banking and finance, pharmaceuticals, energy, or consumer goods. These ETFs invest in a basket of stocks from companies that operate within the chosen sector. By investing in Sector ETFs, individuals can gain exposure to a specific industry without the need to select individual stocks themselves.

Examples: SBI ETF Nifty IT, UTI Nifty Financial Services Index ETF

Currency ETFs

Currency ETFs enable investors to gain exposure to foreign currencies and potentially profit from changes in currency exchange rates. These ETFs typically track currency pairs, such as the US dollar ($) to the euro (€) or the Japanese yen (¥) to the British pound (£). 

When you invest in a Currency ETF, you're essentially speculating on the movement of exchange rates. If you think a particular currency will strengthen against another, you can invest in a Currency ETF and track that currency pair. If your prediction is correct, the value of your ETF investment will increase.

Examples: iShares MSCI Japan ETF, EUR Hedged ETF

Equity ETFs

Equity ETFs invest in a collection of stocks or equity securities. In India, Nifty 50 and Sensex Equity ETFs are pretty common. You can learn more about the basics of Equity ETFs - their functions and benefits, their relationship with indexes, and tax considerations for equity ETF investments in the second chapter, "What are Equity ETFs?"

Examples: HDFC Nifty 50 ETF, Aditya Birla Sun Life Nifty ETF

Commodity ETFs

Commodity ETFs provide exposure to physical commodities like gold, silver, oil, natural gas, or agricultural products. These ETFs either hold physical commodities or track the performance of commodity futures contracts. Commodity ETFs track the performance of commodity indexes, which involve investments in physical commodities.

Currently, in India, there are two available schemes for commodity ETFs: Gold ETFs and Silver ETFs.

Gold ETFs: Gold ETFs track the price of gold, allowing investors to gain exposure to the yellow metal without physically owning it. These ETFs typically hold gold bullion or invest in gold futures contracts.

Silver ETFs: Silver ETFs provide exposure to the price movements of silver. They enable investors to participate in the silver market without the need for physical ownership or handling.

Examples: HDFC Gold ETF, ICICI Prudential Silver, Nippon India Gold BeES

These are the different types of ETFs available in India that you can consider for investment. You can invest in ETFs through lump sum investments or Systematic Investment Plans (SIPs) with the INDmoney app, where you can start daily, weekly, or monthly SIPs in your preferred ETFs.

Key Takeaways

  • Index Fund ETFs track stock market indexes and offer broad market exposure.
  • Bond ETFs provide diversified access to bonds and offer regular interest payments.
  • Sector ETFs focus on specific industries, allowing investors to target specific sectors.
  • Currency ETFs enable investors to invest in foreign currencies and profit from exchange rate changes.
  • Equity ETFs invest in collections of stocks, providing exposure to the equity market.
  • Commodity ETFs offer exposure to physical commodities like gold or silver.