Best Performing ETFs in October | North Loop Official Blog
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03 Nov 2020

Best Performing ETFs in October

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What are ETFs?

Exchange-Traded Funds or ETFs are pooled investments which invest in securities like equities, bonds, commodities that track an underlying index. They can get traded anytime in the market and passively track an index like the Sensex or Nifty by holding securities in the same proportion. For initiating transactions and investing in ETFs, it is necessary to have a Demat account. Before we take a look at the best performing ETFs in October in India, let us read about the benefits of investing in an ETF.

Benefits of investing in ETFs-

Low cost - Cost efficiency is one of the main advantages of investing in ETFs in India. The expense ratio of an ETF is usually less than 0.5% which is considerably lower than the 2-2.5% of actively managed equity funds. A low expense ratio can be beneficial as it means increased payouts in the long run. Therefore, to generate incremental savings, choosing ETFs that have lower fund management fees are a suitable option.

Diverse products - Active mutual funds do not usually track a variety of products. ETFs, on the other hand, do so. The Nifty, Nifty Next 50, Nifty Low Vol 20 Index, Gold are few of the examples. Tracking these indices can provide sufficient exposure to a wide range of securities present in the market.

Efficient Market Hypothesis - According to this hypothesis, it gets difficult to outperform the market always. Therefore, the strategies used by the fund managers of active funds quickly get imitated and arbitraged. For those who believe in this financial theory, ETFs become a better option for passive investing.

Liquidity -As ETFs can get bought and sold at any time during trading hours, they are way more liquid as compared to other investment options. Also, unlike mutual funds, the NAV of ETFs fluctuates throughout the day and allows them to get traded and act as liquid instruments.

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Best performing ETFs in October in India -

Let us now look at the ten best ETFs in India of different categories that you can invest in according to experts -
Scheme Name   
1 YR Return   
Motilal Oswal NASDAQ 100 ETF-G   
Nippon India ETF Gold BeES   
Aditya Birla SL Gold ETF   
Invesco India Gold ETF   
SBI ETF Gold   
Kotak Gold ETF   
HDFC Gold ETF   
Nippon India ETF Long Term Gilt-D   
ICICI Pru Nifty Low Vol 30 ETF-D   
DSP Liquid ETF Reg-DD   

How to choose the best ETFs in India?

Know the expense ratio - An ETFs expense ratio can become the deciding factor when choosing the best one. The expense ratio is the measure of the cost to run the fund that includes various operational costs like management fee, compliance, distribution fee etc. These expenses get deducted from the ETFs assets, lowering the return available to you. Therefore, choosing an ETF with an optimal expense ratio that is low enough to promise decent returns can prove to be a wise decision according to many experts.

Check tracking error - The tracking error is the amount by which a fund’s return differs from the actual index return. The fund return gets indicated by its NAV or Net Asset Value. In India, most of the ETFs invest only a part of their assets in an index, instead of completely tracking it. The rest of it gets used in other financial instruments. However, if you want to check for tracking error when choosing the best ETFs to invest in, you should remember that a low tracking error means a portfolio that is closely following its benchmark and vice versa. Therefore, ideally, the lower the tracking error, the better is the ETF.

Look at the liquidity - The liquidity of an ETF is one of the factors that determine the profitability of your investment. That is because, while investing, it is critical to ensure that you can exit when you want to, to gain the highest profitability. ETFs have an upper-hand in this case because they get designed in such a manner that allows frequent buying and selling, making them considerably liquid investments.

Limitations of ETFs -

Demat and Trading Account - Investing in ETFs requires a Demat and trading account, unlike that for ordinary mutual funds.

Limited growth - Indices like Nifty or Sensex usually includes only the largest companies by size, and most of these remain way past their growth phase. Therefore, ETF investments cannot tap into the opportunities available when investing in high growth potential companies present in the small and mid-cap space that also have a potential for higher returns.

Cannot outperform - If you are looking for passive investing, ETFs can be a suitable option. However, it also involves giving up the potential to outperform as you can only track the index passively. An actively managed fund, on the other hand, can not only give the index return but also beat it in emerging markets like India.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.