An ETF for Preferred Stocks
An ETF for preferred stocks is a kind of fund where one invests in corporate preferred shares. A combination of stocks and bonds makes up preferred shares. Like bonds, they have set dividends; but, they also provide ownership like stocks. By one single investment, these ETFs let investors purchase a basket of such shares.
Why Indians Should Be Aware of It
Although ETFs are still under development in India, knowledge is rising. Many Indian investors seek less risk and consistent income. Along with more flexibility than bonds, a preferred stock ETF can provide consistent income and less risk than ordinary stocks. For those seeking consistent returns without running significant risks, it is a wise decision.
Advantages of Preferred Stock ETFs
- Fixed Income – For retirees or others seeking monthly income, these ETFs pay consistent dividends.
- Lower Risk – Since preferred stocks get priority during dividend payments, they are less risky than ordinary shares.
- Diversification – A single preferred stock ETF exposes investors to diverse companies, lowering total risk.
- Liquidity – ETFs are traded on stock markets and can be bought and sold anytime during market hours.
These characteristics qualify them for conservative Indian investors.
How They Perform
Investing in a preferred stock ETF aggregates your funds with other investors. The fund manager buys preferred stocks from several companies with that money. Mostly, the returns come from the dividends these shares pay. While market conditions might affect the price of the ETF, dividend income remains rather consistent.
How Should One Invest in India?
Though preferred stock ETFs are not yet prevalent in India, some brokerage accounts allow Indian investors to access foreign ETFs. The US markets feature many worldwide ETFs concentrated in preferred stocks. International investing possibilities abound on Indian platforms, including Zerodha, Groww, and ICICI Direct.
Before investing, consider the following:
- Verify the expense ratio first.
- See the ETF’s past performance.
- Know the risks involved.
- Ensure it suits your financial objectives.
Indian Investor Tax Policies
Should you make investments in an overseas preferred stock ETF, the income is taxable. Dividends could be taxed in India as well as in the nation the ETF is based in. The Double Taxation Avoidance Agreement (DTAA) lets you credit tax paid overseas.
Additionally, capital gains tax applies depending on the length of time you own the ETF. Before making worldwide fund investments, always consult a tax professional.
Last Remarks
For Indians seeking lower-risk fixed income, a preferred stock ETF is a wise choice. It provides ease of trading, income, and safety mixed together. Although not yet common in India, global access is now simpler than it was years ago. This could be a great addition to your portfolio if you are open to foreign options and wish for steady returns.
