What are the benefits and limitations of investing in ETFs? MintGenie explains

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Exchange-traded funds (ETFs) can be likened to bundles of marketable securities, providing a wide range of exposure by tracking not just conventional benchmarks such as NSE, BSE, or Nifty 50, but also commodities including gold and silver, themes, and sectors. This adaptability renders them exceptionally versatile instruments for constructing comprehensive investment portfolios. Similar to individual stocks, ETFs are actively traded throughout the day at market prices, unlike index funds that are bought and sold at their net asset value (NAV) only at the close of the trading day.

Although ETFs usually have lower expense ratios compared to traditional mutual funds, their costs are slightly higher than those of index funds due to additional trading expenses. Many investors favour ETFs for potential tax advantages resulting from in-kind creation and redemption processes, which can help minimize capital gains distributions. Investing in an ETF offers numerous advantages, making it a favoured option for both beginners and seasoned investors.

Here are some of the primary benefits: Diversification: Instantly gaining exposure to a diversified set of underlying assets is a key benefit of a single ETF. Achieving such diversification through the individual purchase of stocks or bonds can be both challenging and costly. This feature helps mitigate overall portfolio risk by distributing investments across various sectors and industries.

Cost efficiency: Most ETFs generally boast lower expense ratios compared to actively managed mutual funds since they passively track an index instead of maintaining a team of analysts for selecting individual stocks. This results in enhanced long-term returns for investors. Transparency: The majority