Exchange-Traded Funds (ETFs) have grown in popularity as a cost-effective and diversified way to invest in the stock market. One of the most significant advantages of ETFs is the ability to save on transaction fees while gaining exposure to a broad set of assets. In this blog, we’ll focus on two prominent ETFs in India: the Mirae Asset Midcap 150 ETF and the SBI Nifty 50 ETF, and explore how they can help investors minimize fees while offering strong returns.
Why Invest in ETFs?
ETFs provide exposure to a wide range of stocks through a single investment, making them highly attractive to investors who want to diversify without buying individual shares. Here are the main benefits of investing in ETFs:
- Diversification: By investing in an ETF, you spread your risk across many companies in a single transaction.
- Low Costs: ETFs often have lower management fees compared to actively managed funds, reducing the cost to investors.
- Liquidity: Since ETFs are traded on exchanges, they are highly liquid, allowing for quick buying and selling.
- Tax Efficiency: The structure of ETFs often makes them more tax-efficient compared to mutual funds.
Transaction Fees in ETF Investing
Transaction fees are one of the few unavoidable costs in investing. However, ETFs allow investors to reduce these fees through several means:
- Brokerage Fees: Fees you pay your broker to buy and sell shares. Many brokers now offer zero-commission trades on ETFs.
- Expense Ratios: The annual cost of managing the ETF, expressed as a percentage of your investment. Lower expense ratios result in lower costs over time, which boosts your returns.
For example, the Mirae Asset Midcap 150 ETF boasts an expense ratio of just 0.05%, making it an excellent choice for cost-conscious investors. Similarly, the SBI Nifty 50 ETF has a low expense ratio of 0.07%, making it a solid option for conservative, large-cap investors.
Mirae Asset Midcap 150 ETF: An Overview
The Mirae Asset Midcap 150 ETF provides investors with exposure to the 150 largest midcap companies in India. This ETF is ideal for those seeking a balance between growth potential and moderate risk. While midcaps are generally more volatile than large caps, they also offer greater upside.
- Expense Ratio: 0.05% (as of July 31, 2024)
- Underlying Index: Nifty Midcap 150 Index
- Liquidity: High liquidity as it is traded on major stock exchanges.
Historical Returns:
- 3-year return: 27.5% annualized
- 5-year return: 19.3% annualized
The Mirae Asset Midcap 150 ETF has delivered impressive returns, especially over the last 3 years, as the midcap sector has seen strong growth.
SBI Nifty 50 ETF: A Low-Cost, Conservative Option
The SBI Nifty 50 ETF tracks the Nifty 50 Index, which consists of India’s top 50 blue-chip companies. It offers a low-cost way to invest in large-cap companies that tend to be more stable than midcaps.
- Expense Ratio: 0.07%
- Underlying Index: Nifty 50 Index
- Stability: Large caps tend to be less volatile, making this ETF a safer option for risk-averse investors.
Historical Returns:
- 3-year return: 18.1% annualized
- 5-year return: 12.6% annualized
The SBI Nifty 50 ETF has shown solid performance over the long term, offering steady returns with lower volatility compared to midcap-focused ETFs.
How to Save on Transaction Fees
To maximize your returns, it’s essential to minimize transaction costs. Here’s how you can do that when investing in ETFs:
- Choose a Broker with Low or Zero Fees: Many brokers offer zero-commission trading on ETFs. Look for a broker that charges minimal fees on ETF transactions. You can go direct on website and do I prefer via ICICIDirect.
- Opt for Low-Expense ETFs: The Mirae Asset Midcap 150 ETF and SBI Nifty 50 ETF are both great examples of low-expense ratio ETFs. These minimal fees can make a significant difference over time, especially for long-term investors.
- Hold for the Long Term: Avoid frequent trading, as it can increase costs due to brokerage fees. ETFs are best suited for a buy-and-hold strategy, which minimizes transaction fees and capital gains taxes.
- Avoid Overtrading: By holding ETFs for the long term, you avoid the costs associated with frequent buying and selling, such as brokerage fees and taxes on short-term capital gains.
ETF Returns: What to Expect
To give you a clearer picture, here’s a comparison of the 3-year and 5-year returns of the Mirae Asset Midcap 150 ETF and SBI Nifty 50 ETF:
| ETF | Expense Ratio | 3-Year Return (Annualized) | 5-Year Return (Annualized) |
|---|---|---|---|
| Mirae Asset Midcap 150 ETF | 0.05% | 27.5% | 19.3% |
| SBI Nifty 50 ETF | 0.04% | 18.1% | 12.6% |
As the table shows, Mirae Asset Midcap 150 ETF has outperformed the SBI Nifty 50 ETF over both 3 and 5-year periods. However, the SBI Nifty 50 ETF offers lower volatility, making it ideal for more conservative investors.
Conclusion: ETFs and Cost Efficiency
ETFs like the Mirae Asset Midcap 150 ETF and SBI Nifty 50 ETF offer an excellent way to invest in diversified portfolios with minimal transaction costs. The key to successful ETF investing is selecting funds with low expense ratios, holding for the long term, and minimizing trading fees.
Whether you’re looking for the growth potential of midcaps or the stability of large caps, ETFs provide a flexible, cost-effective solution for building your investment portfolio. By keeping fees low and holding your investments over time, you can maximize returns while keeping costs in check.
Key Takeaway: By choosing low-expense ratio ETFs such as Mirae Asset Midcap 150 ETF and SBI Nifty 50 ETF, and adopting a buy-and-hold strategy, you can save on transaction fees and grow your portfolio efficiently.
Disclaimer: Investments are subject to market risks. Historical performance is not indicative of future results. Always consult a financial advisor before making investment decisions.
