ENThe process of buying and selling ETFs is no rocket science once you have a basic understanding of the concept. ETFs are pooled investment securities that invest in stocks of a specific industry, commodity, index, or other collection of assets. ETFs are like conventional shares, which may be bought or sold on a stock exchange.
ETFs can be set up to track a wide range of financial instruments, from the price of a single commodity to a broad and diverse group of assets like stocks or bonds. ETFs are a favourite among investors and financial advisors because they offer investors access to hundreds or thousands of stocks and bonds at a reasonable cost. Let’s delve into the process of buying and selling ETFs.
How to Buy ETFs?
Here is a step-by-step process for buying ETFs:
Step 1: Log in to your Angel One Demat account with your mobile number and validate with OTP. Next, enter the MPIN.
Note: If you don’t have an Angel One Demat account, you can open one quickly by completing the online account opening process.
Step 2: On the homepage, click on the ETF option and choose an ETF you want to invest in.
Step 3: Now, click on buy and select one-time investment or SIP as per your convenience. One-time investment means you invest a lump sum amount, while SIP requires investing a fixed amount daily, monthly or quarterly.
Step 4: Add quantity and price as per requirement. You can adjust the price by using a limit or market order. In a limit order, you can change the price at your convenience, while market orders restrict you from changing the price.
Step 5: The final step is to click on buy, and your transaction will be executed.
How to Sell ETFs?
Step 1: Log in to your Angel One Demat account with your mobile number and validate with OTP. Next, enter the MPIN.
Step 2: Look for the ETF in the equity tab of the portfolio you want to sell.
Step 3: Now click on place order to execute your transaction.
Now that you know how to purchase and sell ETFs, it's time to understand some crucial information about ETFs.
How to Choose the Right Exchange Traded Funds (ETFs) to Invest?
- Take a look at the underlying indices. Before making a purchase, don't be reluctant to research an ETF's holdings because you can usually do so without incurring a charge.
- The ETF with the lowest expense ratio is not necessarily the best option, despite what is commonly believed. The tracking disparity deserves more consideration. Better funds have smaller gaps.
Other Factors to Consider Before Investing in ETFs
- Volume: ETFs have daily trading volumes, just like equities do. Like a stock, an ETF's volume measures how many units trade hands daily and is influenced by investor activity. However, in the case of ETFs, the daily volume is occasionally erroneously taken as a liquidity gauge.
- Liquidity: One of the most misunderstood aspects of ETFs is liquidity. Like with equities, low trading volume with ETFs does not necessarily indicate low liquidity. The liquidity of an ETF is determined by the liquidity of its underlying securities.
- Bid-Ask Spreads: Most of the time, the bid and ask prices of an ETF will closely correspond to the value of the underlying securities that the ETF owns. However, the spreads on the underlying stocks and the fees associated with assembling and trading can affect the bid-ask spread.
- Transaction Volumes: The market maker may have to buy enormous amounts of the underlying securities to produce more ETF units when an investor acquires a sizeable amount of an ETF that surpasses the amount of inventory that is currently on hand. You may be required to pay higher asking prices, often known as "market impact charges," in order to fulfil the orders.