Collective investment schemes are perfect for investors who don’t want to indulge in day-to-day decision-making. Mutual funds aren’t the only popular collective investment schemes. ETFs are also popular among investors, especially those who prefer tracking market indices. Investors must be aware of the types of ETFs based on asset allocation. Continue reading to understand the ETF categories in detail.
What are ETFs?
ETFs are collective investment schemes, similar to mutual funds. They invest in a basket of securities to build a diverse portfolio and are designed to track popular market indices.
For instance, you can find several funds tracking the performance of NIFTY 50, a popular stock market index. The scheme will have a composition similar to the index it tracks.
Different Types of ETF
Now that you understand what is an ETF, let us discuss its types in detail:
Equity ETF
Equity ETFs have portfolios consisting of stocks of different companies. These stocks can belong to companies within the same or multiple industry sector(s). In most cases, it tracks the performance of an index based on stocks, say theNIFTY 50.
Fixed-Income Funds
As the name suggests, fixed-income ETFs invest in fixed-income securities. These securities can be government/corporate/municipal bonds, treasuries, asset-backed securities, etc. Investors can choose these funds to diversify their portfolios. While stock investments are popular, they can help build a regular source of income. Not to forget, they can also help reduce the overall portfolio risk.
Commodity ETF
Commodity ETFs invest in different commodities to achieve better returns. These commodities can be precious metals, agricultural products, raw materials, etc. These can be designed to track market indices based on commodities. You might also come across commodity stock ETFs. These invest in stocks of companies actively involved in the production, distribution, or management of different commodities.
Currency ETF
Currency ETFs are popular types of exchange traded funds in many markets. They can track the value of a particular currency or a group/basket of currencies. Investors who know little about theforex market can gain exposure with the help of currency ETFs.
Real Estate ETF
Real Estate ETFs usually invest in stocks of REITs (Real Estate Investment Trusts). A REIT is an entity involved in owning and operating real estate properties. These funds are passively managed, thus freeing you from day-to-day decision-making.
Multi-Asset ETF
One can find multi-asset ETFs that invest in a range of securities. They are perfect for investors interested in portfolio diversification. Multi-asset ETFs can invest in stocks, bonds, commodities, and other securities.
Additionally Read: Meaning of Demat Account
Alternatives ETF
These ETFs invest in alternative asset classes or lesser-known strategies. They go beyond traditional stocks and bonds to offer more exposure to investors. These ETFs might employ private equity, hedging, or other unorthodox investment methods.
Sustainable ETF
Sustainable ETFs follow market indices based on sustainable companies or securities. These companies or securities are known to excel based on ESG (Environmental, Social, and Governance) factors.
Conclusion
ETFs are perfect for investors who don’t want to indulge in daily decision-making. Investors can invest in a range of ETF categories. You can choose a reliable stockbroker in India to get started with your investment journey. Also, don’t forget to compare different ETF schemes before making a decision.
Diversify your investment portfolio with various types of Exchange-Traded Funds (ETFs), easily managed through an online demat account for seamless tracking and trading.
Learn More About Mutual Funds