Investing in ETF’s

There are many kinds of Investors in the market. Like every other broking house we too have clients who…

1. Buy & Sell stocks on their own.

2. Many depend on our Research & Advice for Investing.

again, like every other broking house we provide regular advice to our broking clients through various communication means. Our clients are ready to pay us brokerage as high as 3% (1.5% each side), the confidence of the clients reflects the quality of service we are able to deliver to them.

This is because:

1. We don’t encourage Intraday Trading.

2. Unlike most, we advise when to sell.

3. We advise to buy the same stocks which we are buying/holding! In Warren Buffet’s words “We do with your money what we do with our own”

What about Investors who would like to be passive? Would like to Invest for Long Term like Warren Buffet? Who believe investing directly in market like Warren Buffet, and who do not believe in churning and letting others handle their money in Mutual Funds like Warren!

One solution for such investors who follow foot steps of Warren Buffet or may be our own Indian Buffet Mr.Rakesh Jhunjhunwala, is investing through Exchange Traded Funds (ETF’s)

ETF is one of the most preferred investment vehicle today. An Investor not knowing what to buy can buy Sensex or Nifty ETF through a stock broker just like a share. One can buy lumpsum or can buy every month like a SIP.

Sensex or Nifty ETF can otherwise be called as Index ETF’s and would give you Same return that of Index with negligible to zero tracking error.

The biggest advantage in ETF is the cost factor. VRIDHI can provide the service at just 0.25% + taxes so totally amounting to just 0.30%

other charges would be:

1st year: 1. Account Opening Rs.650/- (Demat + Trading charges) 2.Brokerage as said abv 0.30%

2nd year onwards: Demat AMC Rs.300/-

Hence take two scenario’s:

1. Investing Rs.5 Lacs

First Year charge = Rs.2150/- amounting to just 0.43%

Second Year onwards Rs.300/- alone which is just 0.06%

2. Investing Rs.10 Lacs

First Year charge = Rs.3650/- amounting to just 0.365%

Second Year onwards Rs.300/- alone which is just 0.03%

*SEBI has already asked CDSL & NSDL to reduce charges for Passive Demat Accounts hence the above %tages may reduce further.

*Even Index funds have higher charges (due to trail being paid to agents) than the above coupled with huge tracking errors which eat away into returns. Hence one can safely assume how much unseen profits a investor may loose in an equity fund!

Other advantages of ETF’s:

1. Zero headache in deciding what to buy and sell.

2. Good for Long Term investors and does not require regular tracking.

3. Even after factoring ETF fund charges the tracking error will be negligible to zero.

4. Holding in demat form hence consolidation, safety and convenience in buying.

5. Even small investors can buy, One Sensex ETF is costing around just Rs.180/- (One ETF = CMP of Sensex/100 i.e. 18000/100 = Rs.180/- if Sensex goes to 20000 then ETF will trade at Rs.200/- replicating the Sensex returns)

One of the largest ETF companies in the world Vanguard has shown to investors how to invest with least possible expense ratio, and we have demonstrated that above.

*We at VRIDHI care for Investors and are hopeful, looking at the hits we receive on our site, that this message about ETF would be read by thousands of Investors. Our CIO Mr.Vivek Karwa was aggressively talking about ETF’s on Raj TV yesterday.

If your advisor has never spoken about ETF’s till now do ask them this time and keep ETF’s also in mind as an investment tool.

(Comments are welcome on the site only so that others can also read them)

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