What are the costs associated with ETF investing?
While ETFs are known for being low-cost investment options, there are still a few important charges to keep in mind:
1. Expense Ratio
- This is the annual fee charged by the ETF provider to manage the fund.
- It's usually very low for ETFs (often less than 1%).
- SEBI mandates that the expense ratio must be clearly disclosed, and it's already adjusted in the ETF's NAV-so you don't pay it separately.
2. Brokerage Charges
- Since ETFs are traded on the stock exchange, your stockbroker may charge:
- Brokerage fees for buying/selling ETFs
- GST, SEBI turnover charges, STT, and exchange transaction charges-just like with regular stocks
3. Bid-Ask Spread
- The difference between the buy (ask) and sell (bid) price on the exchange can slightly affect your cost.
- A narrow spread means better pricing
- Wider spreads may increase cost, especially in low-volume ETFs
4. Demat Account Charges
- You'll need a Demat account to hold ETFs.
- Annual maintenance charges (AMC) may apply, depending on your service provider.
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