Invest In Sbi Etf Sensex: A Guide To Getting Started

SBI Mutual Fund is one of the trusted asset managers in India. The SBI BSE Sensex ETF is a fund that invests in big companies and seeks to provide returns that closely correspond to the total returns of the securities represented by the BSE Sensex. The fund has no lock-in period and can be purchased from the SBI Mutual Fund website or through platforms like MF Central and MF Utility. As with all equity funds, investors must invest only through the SIP route.

SBI Mutual Fund's asset management

SBI Mutual Fund is an Indian private asset management company introduced by the State Bank of India (SBI) and incorporated in 1987 with its corporate head office located in Mumbai, India. It is a joint venture between the State Bank of India and Amundi, a European asset management company. SBI currently holds a 63% stake in the company, with Amundi holding the remaining 37%.

SBI Mutual Fund became the first non-UTI mutual fund in India when it launched on 29 June 1987. In July 2004, State Bank of India divested 37% of its holding in its mutual fund arm to Societe Generale Asset Management. Post-divestment, State Bank of India's stake in the mutual fund arm came down to 67%. In May 2011, Amundi picked up the 37% stake in SBI Funds Management that was previously held by Societe Generale Asset Management.

SBI Mutual Fund offers a range of equity funds, spanning diversified, thematic, and sector-based options. Investors can customize their portfolios based on specific interests and strategies. The company also provides a broad range of products matching all maturities for cash management. The focus of its investment philosophy is primarily on the product's liquidity as well as the quality of the securities held in the portfolio.

Hybrid Schemes invest in a mixture of multiple asset classes like debt, equity, and gold in different proportions based on the investment objective. The company has a suite of products across the risk spectrum, including a multi-asset offering that has gold in the portfolio into the traditional mix of equity and debt.

SBI Mutual Fund has been appointed as the Asset Management Company of the SBI Mutual Fund. As of March 2024, the SBI Mutual Fund manages assets worth Rs. 9.14 lakh crores. In early 2019, it became the 3rd largest Mutual Fund body in India based on Assets under Management (AUM).

To invest in SBI Mutual Funds online, you can follow these steps:

• Log in to your Groww account. If you do not have an account, you can register and create a new one.
• Upload your identification documents, such as Aadhaar, PAN, Voter ID card, Passport, Driving License, or any ID issued by either Central or State government.
• Upload proof of address. Any identifying document that carries your permanent address is valid.
• Determine your investment's duration.
• Determine the risk amount—whether it is high, low, or medium risk.
• Select the best SBI Mutual Fund according to your criteria.
• If you wish to invest a lump sum amount, click on "Invest One Time." Alternatively, you can start a Systematic Investment Plan (SIP) by clicking on "Start SIP."

Your SBI Mutual Fund investment will reflect in your personal Groww account within 3-4 working days.

ETF investment strategy

Exchange-traded funds (ETFs) are ideal for beginning investors due to their many benefits, such as low expense ratios, instant diversification, and a multitude of investment choices. They also tend to have low investing thresholds, so you don't need a lot of money to get started.

Dollar-Cost Averaging

Dollar-cost averaging (DCA) requires buying a set, fixed-dollar amount of an asset on a regular schedule, regardless of the changing cost of the asset. Instead of chasing the market, these investors build a position in a stock. Over time, the average cost of their investment proves to be competitive. This strategy reduces risk and shields the investor from market volatility.

Sector Rotation

Sector rotation is adjusting a portfolio to take advantage of a new stage in the economic cycle. For example, if an investor has been invested in the biotechnology sector and an economic slowdown is coming, they might decide to take profits in this ETF and put them in a defensive sector such as consumer staples.

Short Selling

Short selling means selling a stock or other asset that has been borrowed. The investor makes money if the asset declines in value or owes money if it gains. Short-selling ETFs is slightly less risky than shorting individual stocks because of the low risk of a short squeeze in an ETF.

Betting on Seasonal Trends

ETFs are good tools for capitalizing on seasonal trends. For example, U.S. equities historically underperform over the six-month May-October period compared to the November-April period. A beginner can take advantage of this seasonal trend by shorting the SPDR S&P 500 ETF around the end of April or the beginning of May and closing the short position in late October.

Portfolio Completion

Portfolio completion may be used strategically or tactically to fill a gap in a portfolio. For example, an investor may have little or no exposure to certain asset classes, market segments, or sectors. In these cases, ETFs can be used to fill gaps until the portfolio can be rebalanced to the desired allocation.

Active/Passive Combinations

Combining lower-cost active funds with index ETFs can achieve a balance between the two approaches. One way to do this is with a core-satellite strategy that employs indexing at the core of a portfolio and actively managed funds as satellites.

Liquidity Management

ETFs can be a good option for an investor who has a large temporary cash position. This cash position may tilt an investor's portfolio away from its targeted allocation to equities or fixed income. Investing a temporary cash position in ETFs reduces the likelihood of such performance shortfalls.

Transition Management

ETFs can be a good option for an investor when transitioning between managers. Sometimes investment managers have to be replaced due to performance issues or a change in management style. ETFs can be used to maintain market exposure and remain fully invested during the search and transition process.

Tactical Adjustments

Tactical investing involves deliberately overweighting or underweighting certain market segments or industry sectors based on your assessment of market or economic cycles. Market-capitalisation-weighted ETFs offer an efficient way to target the desired tilt.

Core-Satellite Methodology

The conventional view of core-satellite methodology suggests that it's prudent to use index funds for areas of the markets that are deemed efficient, such as large-cap shares. This view holds that actively managed funds make more sense to use in areas of the market that are considered inefficient, such as small-cap or emerging market equities.

All-Index ETF Portfolio

An all-index ETF portfolio is diversified very well among various securities and has generally low ongoing expenses. It also offers niche options and transparency on a daily basis into the makeup of the fund.

Middle of the Road

An intermediate approach to an all-ETF portfolio could consist of about 8 ETFs. For stocks, you could have a large-cap U.S. ETF, a small-cap U.S. ETF, an international developed-market ETF, and an emerging-market ETF. For bonds, you could start with a core bond ETF and diversify further by including ETFs that invest in sub-investment-grade bonds and international bonds.

Fine-Tuned Portfolio

On the other end of the spectrum from an ultra-simple ETF portfolio is a fine-tuned portfolio with 20 or more ETFs. This type of portfolio can make sense for investors who like to allocate their accounts toward exactly the parts of the market they expect to perform best.

Keeping it Simple

One option to consider is using two ETFs to help provide a balanced, diversified portfolio of stocks and bonds: a total world stock market ETF and a total bond market ETF. The advantage of this type of portfolio is its simplicity: one stock fund and one bond fund. It will be easy to see when you need to rebalance.

ETF investment process

Step 1: Understand the Basics

Before investing in any Exchange-Traded Fund (ETF), it is important to understand what they are and how they work. ETFs are baskets of securities that trade on an exchange like a stock. They can be composed of various types of investments, such as stocks, bonds, or commodities.

Step 2: Determine Your Investment Goals

Before investing in the SBI ETF Sensex, it is crucial to define your investment goals and risk tolerance. Ask yourself questions like: What are my financial objectives? How much risk am I comfortable with? Am I investing for the short or long term?

Step 3: Research the SBI ETF Sensex

Once you have a basic understanding of ETFs and your investment goals, you can start researching the SBI ETF Sensex specifically. This involves analysing its performance, fees, and underlying holdings.

Step 4: Choose a Brokerage Account

To invest in the SBI ETF Sensex, you will need a brokerage account. You can choose an online brokerage firm that offers a wide range of ETFs, including the SBI ETF Sensex. Compare the fees, features, and services offered by different brokerage firms before selecting one that aligns with your needs.

Step 5: Place Your Order

After funding your brokerage account, you can place an order to purchase the SBI ETF Sensex. You can buy shares of the ETF just like you would buy a stock, by specifying the number of shares or the total dollar amount you wish to invest.

Step 6: Monitor and Rebalance Your Portfolio

Once you've made your investment, it's important to regularly monitor the performance of the SBI ETF Sensex and your overall portfolio. Depending on your investment goals and market conditions, you may need to rebalance your portfolio from time to time to ensure it remains aligned with your risk tolerance and financial objectives.

Step 7: Consider the Benefits and Risks

Throughout the investment process, keep in mind the benefits and risks associated with investing in the SBI ETF Sensex. ETFs offer diversification, liquidity, and low costs. However, they also carry market risk, and their performance can be volatile, especially over the short term.

Step 8: Consult a Financial Advisor

If you're new to investing or have complex financial needs, consider consulting a financial advisor or investment professional. They can provide personalised advice and guidance based on your specific circumstances, helping you make more informed investment decisions.

ETF investment risks

When investing in SBI ETF Sensex, it is important to be aware of the potential risks involved. Here are some key ETF investment risks to consider:

• Market Risk: The value of the SBI ETF Sensex is influenced by the performance of the underlying BSE Sensex stocks. If the overall stock market experiences a downturn or there is negative news affecting the BSE Sensex stocks, the value of the ETF may decline.
• Liquidity Risk: ETFs are typically highly liquid, allowing investors to buy and sell units easily. However, in times of market stress or unexpected events, the liquidity of the ETF may be affected, making it difficult to sell units without impacting the market price.
• Tracking Error Risk: The SBI ETF Sensex aims to replicate the performance of the BSE Sensex. However, due to various factors such as tracking errors, transaction costs, and rebalancing, the actual performance of the ETF may deviate from the index it tracks. This deviation is known as tracking error, and it can lead to the ETF underperforming or outperforming the index.
• Concentration Risk: The SBI ETF Sensex invests primarily in large-cap stocks within the BSE Sensex. This concentration in a specific group of stocks means that any significant decline in the performance of these large-cap stocks could have a substantial impact on the value of the ETF.
• Expense Ratio Risk: ETFs typically have lower expense ratios compared to actively managed funds. However, the expense ratio of an ETF can impact its overall returns. SBI ETF Sensex has a relatively low expense ratio of 0.04%, which is favourable for investors.
• Sector-Specific Risk: The performance of the SBI ETF Sensex is closely tied to the performance of the Indian stock market, particularly the large-cap segment. Any adverse events or downturns affecting the Indian economy or specific sectors within it could impact the value of the ETF.

It is important to remember that investing in ETFs carries risks, and there is no assurance or guarantee of achieving the desired investment goals. Investors should carefully consider their risk tolerance, conduct thorough research, and seek professional financial advice before making any investment decisions.

ETF investment benefits

Exchange-traded funds (ETFs) have a range of benefits for investors, depending on their investment style, knowledge level, risk tolerance, asset mix, and time horizon. Here are some of the advantages of investing in ETFs, including the SBI ETF Sensex:

Diversification

ETFs are designed to provide instant diversification. A single ETF can give you exposure to different asset classes, such as equities or fixed income, industry sectors, and geographic regions. This helps to reduce risk by spreading your investments across a wider range of securities.

Low Fees

Many ETFs are passively managed, which means they have lower management expense ratios (MERs) compared to actively managed investments. This can result in higher returns for investors as lower fees lead to higher returns.

Flexibility

ETFs trade on a stock exchange, giving you the flexibility to buy or sell them during the trading day. This allows you to react to market movements and make timely investment decisions.

Transparency

ETFs provide transparency as investors can see the portfolio composition in a timely manner. Holdings are disclosed daily, allowing investors to understand the underlying securities and their associated risks.

Portfolio Management

Passive ETFs tend to make fewer trades, which can result in lower portfolio turnover and lower management expense ratios. This may also lead to fewer taxable capital gains that must be distributed to investors, improving overall returns.

Liquidity

The liquidity of an ETF is determined by the liquidity of its underlying securities. While low trading volume does not necessarily indicate low liquidity, the more liquid an ETF is, the smaller the bid/ask spread will be.

Frequently asked questions