Exploring the world of ETFs: Insights from the “Smartly Passive” masterclass

Like the previous episodes of the series, the third segment of ICICI ETF and CNBC TV18’s “Smartly Passive: Unlocking the World of ETFs” took a deep dive into passive investing, offering insights and strategies to help investors improve their portfolios.

Designed to educate investors on the potential of Exchange Traded Funds (ETFs) in portfolio management, this masterclass featured Amit Bivalkar, Founder, Sapient Finserv Private Limited, who emphasized the importance of a well-constructed portfolio that balances risk and return based on an investor’s risk tolerance, time horizon and investment objectives.

He began by pointing out that “ETFs are a relatively new investment vehicle, having emerged in the last five or six years. Awareness and education about this product is increasing very rapidly due to its cost-effective nature.”

ETFs are a type of investment vehicle that tracks the performance of a stock index. They offer investors an efficient way to achieve diversification, which is crucial for managing risk and achieving financial goals. Amit Bivalkar highlighted the regulatory support from SEBI, which has allowed the Employees’ Provident Fund (EPFO) to invest in ETFs, encouraging broader retail participation.

As the ETF market evolves, a variety of offerings are becoming available to investors and Amit noted that in the future, this range is expected to expand beyond traditional equity and debt ETFs. Sector-specific ETFs, such as those focused on electric vehicles (EVs) or renewable energy, are likely to gain ground. In addition, thematic and smart beta ETFs are emerging, allowing investors to focus on specific strategies such as ESG (environmental, social and governance), healthcare or technology.

Amit also touched on how customized ETF portfolios could meet the diverse objectives and risk profiles of different investors. For retirees, the focus could be on income generation, capital preservation and minimizing market volatility. Taking this example further, Amit suggested options such as dividend ETFs, income-oriented ETFs, capital preservation ETFs and low volatility ETFs to meet the needs of this class of investors.

For younger professionals, he argued that the emphasis is on long-term wealth accumulation and capital appreciation. With a longer time horizon, he proposed that these investors could allocate more funds to higher-risk, higher-reward investments, such as thematic or growth-oriented ETFs.

When it comes to market volatility, which is a concern for many investors, ETFs offer tools to weather these fluctuations. Amit stressed the importance of maintaining a long-term investment outlook and ensuring that portfolios are well diversified across asset classes and geographies. “During volatile markets, it is more important to maintain a long-term investment outlook. Market volatility is often short-term and staying invested can help investors benefit from eventual recoveries,” he advised.

AI and machine learning are increasingly influencing ETF selection and portfolio management. These technologies enable the analysis of large amounts of data, providing insights into market trends, sentiment and optimal asset allocation. Robo-advisors, which use AI to build and manage ETF portfolios based on individual investor profiles, are becoming more common and offer personalized and cost-effective solutions. “AI and machine learning should be used to identify potential risks and opportunities faster and more accurately than traditional methods,” Amit added.

As the world of ETFs continues to expand and evolve, the “Smartly Passive” masterclass sought to empower the audience to make more informed investment decisions, navigating the complexities of financial markets with confidence.

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