A few days ago
in one day
the market went up by 5%
But my portfolio only grew
by 2 or 3%.
Then the market went down by 1%.
And my portfolio went down by 3-4%.
Why does it always happen
when we try to make more money
and build a good portfolio,
but can't beat the market.
What do we do in this case?
How can we stay in the market
and make good money
without taking a lot of risks?
Hello friends,
I, Jagdeep Singh, welcome you to Groww channel.
Today
we are going to talk about Index
I am going to tell you
something interesting related to Index
in which if you invest,
the more the market changes
you get more profits.
Friends, what is Index?
How do we decide which shares go into Index?
Because you must have heard of
NIFTY 50 and Sensex 30.
I will tell you the basics about the index.
Imagine that you went to a shop
to buy chocolates.
And you were confused about which chocolate to buy
there is risk in buying a full box of chocolates
and if you don't like it that it will go waste.
In that case, the solution is
that we buy a box
filled with several types of chocolates.
What is the benefit of that?
We get more variety
and there is less risk
of it going waste.
The index is such that
in an index, we put small shares from several sectors
and make a portfolio
which is called the market index.
To talk about NIFTY 50,
NIFTY 50 has 50 shares
taken from different sectors
These shares could be called
the best of those sectors.
In the case of Sensex,
it has 30 shares from a variety of sectors
You must be thinking that Index is
a very good place to invest in.
I will come back to my first question
when I told you that when the market
goes up, the portfolio doesn't always go up.
The index is a solution
which will give at least as much
returns as the rise in the market.
That instrument is called ETF
Exchange Traded Fund.
Now you must be wondering
how to invest in ETFs.
And how is it good for me?
When should I invest in ETFs?
Who is ETF best for?
ETF is best for those
who don't know which stocks
they should invest in.
But they think that the market is growing
so they have to invest
But they cannot take the risk of
investing in a random stock.
It is better for them to invest in ETFs.
Because, friends,
ETFs track the index.
If the index goes up by 1%,
ETF also goes up by 1%.
In the longer run,
you get as much returns
as you the index has grown.
You must be thinking how
we can invest in ETFs.
Investing in ETFs is very easy.
If you have a Demat account,
if you are registered with a broker
Look for ETFs there
and you will find multiple ETFs.
Some ETFs follow NIFTY
whereas some track Sensex.
Which one of these you feel
more confident about
you can buy ETF related to that one.
You can buy these anytime,
and after buying
its settlement is similar to that of shares
And it comes to your Demat account.
Now you must be thinking
if ETFs are so good,
then why doesn't everyone invest in it?
Everything has some risk associated with it.
Some pros and some cons.
I will tell you what the problem with ETFs is.
ETFs have one major problem: liquidity.
To explain liquidity in simple terms
if you are buying shares
you also need a seller
who is ready to sell the shares.
Whenever we go to the exchange to
buy shares of a company
then you get sellers.
If the buyers and sellers are readily available
then the liquidity of that share is good.
In the case of ETFs,
liquidity is a problem.
There is a chance that
you won't find any sellers when you go to buy.
For example, when the market went up
5%, there must have been a liquidity crunch.
Maybe more people wanted to buy
and there weren't enough sellers.
If it wasn't for the issue of liquidity,
ETF is a good instrument.
If you think that the market is going up
you can buy ETFs without second thought.
You must be thinking
if there is a liquidity crunch
who could solve it?
If I cannot sell
what I have bought, I will have a big issue
Friends,
this problem too has a solution.
It is called Index Mutual Funds.
Index mutual funds are like normal mutual funds.
They pool money from people
invest in instruments that track
the index.
You get as much returns from this
as you get from index.
But this mutual fund has an expense
which isn't too much.
But the advantage is that
if you are in need of money,
you can easily redeem.
You must be wondering how
index funds solve the problem of liquidity.
Because Index funds receive money from a lot of sources.
They do not invest all the money
and retain some in cash.
So that if there is a problem of liquidity
they can use the cash to solve the problem.
You must be thinking
that there are so many types of index funds.
Many mutual fund companies offer index funds
Which among them is good?
I will tell you two techniques to know that.
First, the expense ratio.
Expense ratio is the charge
the AMC levies for managing the fund
The lower it is,
the better it is for the investors.
Because in this case,
the investment is done directly on the index.
there is less effort,
then the expense ratio too must be less.
So whenever you compare
index mutual funds
first of all, compare the expense ratio
Only then you think about investing.
As I told you
index mutual funds keep some portion in cash
to fulfil your liquidity requirements
But before investing
make sure that
there isn't too much portion in cash.
The more there is in cash,
the less the returns will be.
If there is less returns,
investors also get less returns.
If you keep watch of these two factors
then you can choose a good index mutual fund.
To talk about data regarding ETFs
and how it is becoming popular
in 2008, the market for ETFs was 800 billion.
It has now increased to 5 trillion.
What is the reason behind this?
The market is becoming more mature
there is less alpha
To talk about alpha,
how well people are able to time the market
how much more benefits they can earn.
People think that rather than
losing your money chasing returns
that they invest in ETFs.
So that if the market goes up
you get returns,
And there is less loss than usual
After this video,
I will leave you with a question
What do you think is better?
ETFs or Index Mutual Funds?
Comment to let us know
what you think.
Friends, if you enjoyed this video,
please like it.
Comment below
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because we will make more videos on financial knowledge,
Happy investing!