Equity Investment is becoming increasingly mainstream. The emergence of discount brokerages has gamified the experience of buying stocks and today we have everyone from the age of 18 to 60 looking to buy stocks. However, for the ones still viewing the equity market from the outside, “where to begin “is a huge concern. In this piece, we’ll address the question on how to start investing in the simplest way.
Index Funds and EFTs
Investing in individual stocks is quite a task indeed. While you can go out there and buy any stock you want, to make an informed choice, quite a bit of research is needed. Right from the management of the company to its finances, you need to have an idea about everything. However, everyone may not have the time nor the ability to research stocks in depth. This is where Index Funds and ETFs or Exchange Traded funds come into the picture. Every country’s stock market has a primary index. It comprises a certain number of stocks that also represent the entire market. Nifty in India, S & P 500 in the US, etc. Index Funds and ETFs track those Indices.
What is the difference
If Index Funds and ETFs perform similar functions, what is the difference between the two? Here it is:
- An index fund is a type of mutual fund. You can not trade it on the stock exchange.
- Buying and selling are based on the price at the end of the market hours.
- The buying and selling price of an Index Fund depends on NAV i.e Net Asset value of the fund.
- An ETF is traded like a stock on the stock exchange.
- You can buy and sell it during market hours.
- The buying and selling price of an ETF is primarily influenced by demand and supply.
Which one to choose for investing
When a higher volume of money is involved then the minor fluctuations and expenses in ETFs and Index Funds make a difference. However, if you are just starting, it doesn’t matter in which instrument you invest.
Investing in ETFs and Index Funds is extremely beneficial as historically, the equity markets of developed and most developing markets have always gone higher. Be it the United States, China, or India, over a longer horizon, equity markets have also brought great profits to investors. In addition to this, Index Funds have been around in 50 years, as reported by Financial Times. ETFs and Index funds are a great way to invest in the broader market without worrying about individual stocks. Finally, this is the answer to your question of “how to start investing“.