Investing in exchange-traded funds (ETFs) is already somewhat common in India. Still, a new kind of ETF called the single stock ETF is attracting interest right now. Unlike most ETFs, this one follows just one company’s shares instead of a collection of equities, as the name implies.
Although this product is still new in India, with the advantages of ETF trading, investors who wish to be exposed to certain companies are already drawn to it.
A Single Stock ETF is what?
An exchange-traded fund with an eye towards one listed company is a single stock ETF. Its performance is designed to reflect that of that one stock. The ETF increases as well if that stock increases. Should it collapse, the ETF also suffers. Unlike conventional ETFs with a basket of stocks—like Nifty 50 or Sensex ETFs—this one is linked to just one company.
Why Are ETFs in Single Stock Getting Popular?
You are investing in one stock, not an entire index, so it is simple to understand.
Some single stock ETFs have 2x or 3x exposure, so your gains—or losses—move more quickly.
Direct purchase of the stock is not necessary. There are some pricey large corporation stocks. A single stock ETF exposes you at a reduced cost.
Like shares, these ETFs are exchanged any time during market hours.
Advantages of single stock ETFs:
- The ETF might be priced less even if the shares of a company are costly.
- Like any other share, you can purchase and sell it on the stock market.
- Diversification within Exposure: Although one stock is the main emphasis, additional ways could help to manage it differently.
- Regulated Product: For some investors, it is safer than direct derivatives since it exchanges on SEBI guidelines.
Concerns to Remember
- High volatility: Price swings might be extreme since it tracks one stock.
- Your investment just relies on the performance of one company.
- Sometimes fund costs or delays in adjustments cause the ETF to not precisely match the price of the stock.
- Leverage Risk: Should you be using a leveraged single stock ETF, losses can potentially compound.
Who ought to give investing some thought?
- Those seeking temporary action in trading.
- Investors firmly believing in one company.
- Those wishing to escape the exorbitant cost of one stock.
- Those at ease embracing more risk.
India has examples here.
Single stock ETFs are still rare but increasing in India. Several ETFs today follow firms such as Reliance Industries, TCS, Infosys, and HDFC Bank. Usually started by fund houses, these are accessible via your normal trading platform or demat account.
In conclusion
Investing in a company you trust becomes targeted and strong with a single stock ETF. It does, however, carry higher risk than other ETFs as it depends on just one stock. Those who desire to make aggressive bets and grasp the stock market will find it most appropriate. Research always before making an investment; never invest more than you could afford to lose.
