Exchange-traded funds (ETFs)

~ Yash Gupta & Subham Roy (GLIM Gurgaon)

Exchange-traded funds (ETFs) have grown in popularity as means of investment for people seeking diversified exposure to several asset classes. ETFs offer investors cheap and simple investment vehicle that can be exchange traded, much like stocks. What are ETFs?

ETFs are investment funds that follow particular indices, such as NASDAQ or S&P 500, and are exchanged on exchanges. ETFs contain variety of securities, including stocks, bonds, and commodities, and they give investors chance to trade for diversified exposure to these assets. ETFs can be purchased and sold at market prices throughout day, in contrast to mutual funds, which are priced at conclusion of each trading day.

How do ETFs work?

ETFs operate by following certain index and maintaining portfolio of securities that closely resembles performance of that index. As an illustration, if shareholder buys ETF that tracks S&P 500 index, ETF will have basket of equities that correspond to S&P 500 index. By purchasing and selling securities in basket based on changes in index, ETF will then attempt to mimic performance of S&P 500 index. As ETFs are passive investments and don't require active management, they often have cheaper costs than mutual funds.

Practical examples of ETFs

SPDR S&P 500 ETF (SPY)

One of oldest and most well-liked ETFs on market. It follows S&P 500 index, which represents 500 largest publicly traded American firms. SPY ETF is a great tool for investors to diversify their portfolios across various sectors and businesses and obtain exposure to U.S. equity market.

Nifty 50 ETF iShares Core MSCI EAFE ETF (IEFA) exposes investors to equities markets in industrialised nations outside of North America. The MSCI EAFE Investable Market Index, which represents 85% of the equity markets in Europe, Asia, and Australia, is what the IEFA ETF tracks. For investors wishing to diversify their portfolios outside of the US equities market, the ETF is a great option.

Monitors Nifty 50 Index's performance, which consists of 50 largest and most liquid equities listed on National Stock Exchange (NSE). It is administered by number of fund companies, including SBI Mutual Fund, ICICI Prudential, and Kotak Mahindra.

Invesco QQQ ETF (QQQ)

Gives investors exposure to the 100 largest non-financial firms listed on the NASDAQ stock exchange, or the NASDAQ-100 Index. Given that the majority of the companies in the NASDAQ-100 index are in the technology sector, the QQQ ETF is a great option for investors seeking exposure to this market. The ETF is an excellent approach for investors to get exposure to the technology sector's growth potential.

Benefits of investing in ETFs

1. Diversification: Lowers the risk of concentration in a single stock or industry by allowing investors to trade a broad basket of securities.

2. Reduced fees: As they are passive investments that don't need active management, they typically have lower fees than mutual funds.

3. Liquidity: As they are traded on exchanges and can be bought and sold at market rates throughout the day, they are more liquid investments than mutual funds.

4. Tax efficiency: Better than mutual funds at reducing taxes because they typically have lower turnover rates and distribute fewer capital gains.

Risks of investing in ETFs

• Market risk: Because they are subject to market risk, their performance i s correlated with that of the underlying index. The ETF will perform poorly if the index does not.

• Liquidity: They can nonetheless face times of low liquidity, which could lead to wider bid-ask spreads and higher trading costs while being more liquid than mutual funds.

• Tracking error: Due to factors including fees, trading expenses, and changes in index composition, they may not completely track their underlying index. This can cause the performance of the ETF and the performance of the underlying index to diverge.

Conclusion

ETFs are an excellent investment vehicle for investors looking to gain diversified exposure to various asset classes. They provide cost-effective and easy-to-use investment tool that can be traded on exchange, much like stock. ETFs offer several benefits, including diversification, lower fees, liquidity, and tax efficiency. However, like any investment, ETFs are subject to market risk, liquidity risk, and tracking error. It is important for investors to conduct thorough research and consult with financial advisor before investing in ETFs or any other investment vehicle.

References

1. Growth of Exchange Traded Funds (ETFs) globally and in India - Personal financeTrading Q&A by Zerodha - All your queries on trading and markets answered (tradingqna.com)

2. How ETF's Work | Exchange Traded Funds In India From ICICI Direct

3. Trove Finance on Twitter: "The S&P 500 index tracks the 500 largest companies listed on US stock exchanges. You can invest in this index through popular ETFs such as the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV). These #ETFs & many more are available via Trove. #Trovefinance #S&P500 https://t.co/UOmU7zXD6m" / Twitter

4. Top 7 Reasons Why Invest in SPY ETF (SPDR S&P 500 Trust ETF) (dailypik.com)

5. Quantum Nifty 50 ETF Fund of Fund: Aims to Grow Your Wealth with India’s Top 50 companies (personalfn.com)

6. AUM of Nifty 50-based passive funds crosses Rs 2 trillion. Have investors benefitted? (moneycontrol.com)

7. IEFA - iShares Core MSCI EAFE ETF - Portfolio Holdings, AUM (13F, 13G) (fintel.io)

8. BTC iShares Core MSCI EAFE ETF: Heavy EU Exposure May Be A Drag | Seeking Alpha

9. Invesco QQQ ETF | Invesco US

10. QQQ ETF Risks and Rewards (investopedia.com)

11. Explore what are the benefits of ETFs | Mutual Funds Sahi Hai

Fintech innovations and their impact on traditional financial institutions

~ Shreyas Kulkarni (MES Garware College of Commerce)

The financial industry's longstanding fortress of traditional banking and insurance establishments was once regarded as indestructible. Yet, with the introduction of fintech technology, these established enterprises have been forced on the defensive, causing unexpected market turmoil. Fintech is a term that refers to using technology to simplify and automate financial services, and it has upended the industry by providing substitutes for the standard banking operations.

Fintech has made waves in the banking indus try, impacting payments significantly. Platforms like Paytm, BharatPay, and GooglePay have revolutionized payments, providing cheaper and better solutions than conventional financial institutions. Their innovative payment structures enable companies of all sizes to accept payments from clients worldwide sans any intricacies or exorbitant fees. Providing a superior customer experience that is intuitive and user-friendly, fintech companies have challenged the long-standing dominance of traditional financial institutions in payment processing. It's not just about being easy and cost -effective, but also delivering simple payment interfaces. As a result, traditional institutions are feeling the heat.

Leveraging cutting-edge tech like biometrics, AI, and machine learning, fintech companies are shaking up payments. These improvements boost security, reliability, and user experience. Not only that, but fintech also offers financial services to previously excluded populations, such as the unbanked and underbanked, through mobile payments and digital wallets. This implies clients can exchange and get cash, pay bills, and make buys without a bank account, changing the lives of millions of individuals around the world.

As disruption spreads, traditional financial inst itutions face tremendous pressure. Fintech new businesses are taking a noteworthy share of the advertising and taking off them battling to keep up with development. To stay competitive, conventional monetary education must embrace a customer-centric approach and grasp innovation. This requires investing in digital channels, developing intuitive user interfaces and offering customized services based on the needs of existing customers.

Another area where fintech innovations are shaking up the financial sector is lending. By offering cheaper interest rates and more flexible loan restrictions, peer-to-peer (P2P) lending platforms like Loan Club and Prosper are providing borrowers with an alternative to conventional banks. P2P lending platforms are circumventing conventional financial institutions and upending the lending environment by utilizing technology to link investors and borrowers. There are a number of reasons why P2P lending networks are successful. First off, compared to traditional banks, the platforms are able to offer cheaper interest rates because of their lower administrative expenses. P2P lending platforms may operate more cheaply since they don't require physical branches or a large staff, and they can pass these savings on to borrowers.

Fintech technologies are transforming the world of investing and making it easier and more inexpensive for people to buy shares. Robo-advisors are setting the pace for this shift by providing algorithm-based investing advice and building personalized investment portfolios depending on the client's objectives and risk tolerance. Examples of these firms are Betterment and Wealthfront.

Utilizing automated, algorithm-based financial planning and investing services has several advantages. In contrast to traditional financial consultants, who sometimes demand significant fees for investing advice, they provide a less expensive option. These businesses are able to provide their services at a fraction of the cost of typical financial advisers because they automate investment guidance using algorithms. Additionally, these investment and financial planning services provide a more tailored investing experience. The automated services may build investment portfolios that are suited to a person's needs by examining the person's financial objectives, risk tolerance, and investment preferences. This contrasts with conventional financial counselors who could provide a universal method of investing.

Fintech technologies are revolutionizing the insurance sector, and technologically forwardthinking businesses are driving this change. By providing a digital platform for clients to buy insurance policies, submit claims, and be paid, businesses like Lemonade and Metromile are upending the conventional insurance business model.

There are several advantages to employing technical advances that are developed and put into use to increase the effectiveness of the platforms used by the insurance sector. First off, they provide a more convenient and user-friendly experience than traditional insurance providers, who sometimes ask clients to complete protracted forms and wait days or even weeks to get a quotation or submit a claim. Second, to deliver more precise risk assessments and customized insurance solutions, these businesses are utilizing technologies like artificial intelligence and machine learning. This enables businesses to develop insurance solution s that are suited to the needs of the person and give greater coverage at a lower cost.

Furthermore, by automating manual tasks and employing data analytics to enhance their business models, these platforms may simplify company operations and save expenses. These advantages are causing technologically innovative businesses to acquire market share and compete with established insurance providers. Although conventional insurance providers have begun to make technological investments and provide digital platforms, they are still unable to keep up with the rate of innovation and provide the same degree of comfort and customization as the market leaders. Fintech advances have not only upended established financial institutions, but they have also created chances for cooperation. Traditional financial institutions are collaborating with fintech firms to make use of their technological know-how and offer more creative and effective financial services. Due to this, collaborations between banks and fintech firms have increased in fields including payments, lending, and investment.

In conclusion, it is impossible to deny how fintech innovations are affecting established financial institutions. Fintech innovations have pushed conventional financial institutions to innovate and adapt as a result of the disruption of their long-standing business models. Fintech advancements, however, have also made it possible for conventional financial institutions and fintech businesses to work together. As a management student, I think that cooperation between established financial institutions and fintech firms will determine the financial industry's future. It is crucial for established financial institutions to embrace innovation and change in the financial sector.