Exchange Traded Fund: How are ETFs taxed in India?
Imagine you love different types of candies and want a bit of everything without spending too much on each kind. So, you decide to buy a ‘Candy Mix’ bag. This bag contains a variety of candies like chocolates, gummies, polos and many more. So, instead of purchasing each candy separately, you get them all in one bag.
An Exchange Traded Fund (ETF) is like that ‘Candy Mix’ bag, but it contains equities or bonds that track an underlying index.
ETF allows you to invest in various securities at once, and track indexes such as Sensex or Nifty. So, if you buy units of an ETF, you’re basically getting a small piece of share of several companies all at once, just like getting a taste of different candies from your mix bag.
ETF can be bought to have ownership in the securities of Indian companies or foreign companies. For example, there’s an ETF called Mirae Assent FANG or MAFANG, which invests in the top 10 US technology companies, which include stocks of Facebook, Apple, Amazon, Google, etc. So, if you buy a unit of MAFANG ETF, you’re basically investing in these US companies at once, spreading your risk.
Also Read: Small Cap vs Mid Cap vs Large Cap Stocks: Where to invest for maximizing your returns?
Similarly, if you are bullish that Artificial Intelligence (AI) is the next big thing or a general-purpose technology that can create fortunes, but you are not sure which company you should place a bet on. In this case, IT ETFs can help you. If one company cannot achieve big in AI, it might not affect your investment as much if some other company in that ETF does well.
In summary, an ETF is like a mixed bag of securities you can buy and sell on the stock market. It’s a way to invest in various companies without buying each stock
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