What is an ETF and how does it work? ETF stands for Exchange Traded Fund, and is a form of investment similar to a mutual fund. For example, the National Stock Exchange of India (NSE) Nifty index is made up of stocks of 50 companies.
What is the main benefit of an ETF?
In this, companies from different sectors have a specific weighting or ‘weightage’. For example, the weightage of Reliance and HDFC stocks in Nifty is 9.21 percent and 7.47 percent respectively as of last Friday.
Mutual fund companies will come out with a scheme that exactly mirrors the Nifty 50. In it, the same 50 stocks in Nifty 50 will be bought and collected in the same weight pair. This means that no matter what growth or decline occurs in Nifty 50, you will not have the facility to buy all the 50 stocks in this ETF.
But, if you buy Nifty 50 ETF units, it means that you are buying the growth of the 50 stocks in it. Also, since these ETF units are listed on the stock exchange, you can buy and sell ETF units just like buying and selling stocks.
The management fees for other mutual funds are slightly higher. Management fees for ETFs are low. It doesn’t matter if a stock goes up or down, investors will benefit depending on how the index moves. This is a slightly lower-risk investment in the stock market.
What are the best options for emergency funds?
Although the importance of an emergency fund to help face unexpected crises is constantly emphasized, various studies have revealed that many Indians are neglecting this fund. A recent study conducted by Phenology Ventures revealed that 75 percent of people do not have proper financial planning and an emergency fund. Since an emergency fund is essential for financial security, let’s take a look at this:
Monthly expenses: An amount for at least six months of basic expenses is considered an emergency fund. The first step to creating this fund is to monitor your monthly expenses and know how much you spend on each and every thing. This will help you set a savings goal.
Savings account: After knowing your monthly expenses, you should set aside an amount for an emergency fund and save it. It is also good to have a separate savings account for this. You should pay the appropriate amount in this account every month. This should be considered an essential need.
Expense control: Generally, many people have the habit of spending more on payday. To avoid this, you should plan your expenses in advance. Listing essential expenses will help you identify and avoid wasteful spending. This amount can be allocated to an emergency fund.
Income sources: While cost control is important, it is not enough. If possible, you should look for ways to increase your income. You should generate additional income through part-time employment, freelance work, consulting, etc.
Monitoring: After taking these methods, you should continue to monitor your progress. This will help you save as planned and will also help you decide whether you need more money. Financial management becomes easier once you make planning and saving a habit.
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