Why S&P BSE 500 ETF can be a good starting point for new investors

The year 2021 acted as a comeback of sorts as businesses and schools started reopening and people slowly but surely tried to inch back to normal life. The stock markets continued with their spectacular run and saw increasing participation by retail investors as exemplified by the growth in mutual fund Assets Under Management (AUM) and demat accounts. However, the turn of the calendar year brought with it enhanced volatility and headwinds in the form of geopolitical risks, rising inflation, increasing interest rates etc. Consequently, equity markets corrected sharply thereby giving further momentum to the cycle of greed and fear. Given the heightened volatility, many investors are concerned about deploying further into equities and are unable to make optimal investment decisions.

Inarguably, investing in volatile market is a challenging task. But what needs to be remembered is that equities are vehicles of long-term growth and consistently investing in equities can help potentially generate significant long-term returns. Further, India remains a bright spot among the developing markets and equity markets will likely benefit from this over the long-term. However, making the right investment choices is never easy and these challenges only get amplified in a volatile environment. An easy way to overcome this hurdle is by investing in the S&P BSE 500 Index.

Overcoming the hurdles with S&P BSE 500 ETF
A great way to invest in the S&P BSE 500 Index is to invest via Exchange Traded Funds or ETFs. First up, let us discuss what are ETFs and how they can enhance your investment journey. An ETF is simply an investment portfolio that consists of all the securities that form a part of the chosen underlying index and that too in the same proportion. As a result, when the underlying index goes up, the value of the ETF increases and vice versa. The marginal difference between the performance of the underlying index and the ETF is due to tracking error which can be attributed to the expenses incurred by the ETF.

Take for example the S&P BSE 500 Index. An ETF which tracks this index will invest in all the constituents of the S&P BSE 500 Index and in the same proportion. As a result, the extent of gains or losses on the ETF will also be similar to that of the Index. Furthermore, the units of an ETF, in this case the S&P BSE 500 ETF, are listed on the stock exchange. As a result, you can easily buy and sell the units during trading hours.

While there will be several ETF options available, the S&P BSE 500 ETF can prove to be a compelling choice in the current environment. The index is fairly diversified in nature both in terms of market capitalisation and sector exposure. It has a healthy mix of stocks from the large-cap, mid-cap, and small-cap space. Investors choosing to invest in such an index can potentially generate significant long-term returns from exposure to mid and small-cap stocks while maintaining portfolio stability through exposure to large-cap stocks. This takes away the dilemma on whether to invest in large, mid or small caps.

The S&P BSE 500 ETF can be a great investment choice for both new-to-market investors as well as seasoned investors. If you are concerned about equity market volatility, then the ETF acts as a vehicle to cautiously dip your toes in the equity market. On the other hand, if you are a seasoned investor, then the ETF can help you improve portfolio diversification. Adding to the appeal of ETFs is the fact that they are generally low cost, liquid, and transparent.

So, if you are looking to participate in the India growth story but don’t know when and where to invest, especially in the current market scenario, the S&P BSE 500 ETF can be a good starting point.