My 5 Ultimate ETFs for Long-Term Wealth – ETF Masterclass (MUST WATCH!) | Rahul Jain

The Impact of Small Changes in Investment Returns

Understanding the Power of Returns

• A portfolio of 50 lakhs at a 12% return can grow to approximately 4.82 crores over 20 years, while a mere increase to 12.5% raises it to about 5.27 crores, showcasing the significant impact of small changes in returns.

• This highlights that an additional 0.5% return annually can lead to substantial wealth accumulation over time.

Exploring ETFs for Better Returns

• Exchange-Traded Funds (ETFs) are presented as a cost-effective alternative for generating higher returns compared to mutual funds due to their lower expense ratios.

• The speaker emphasizes that this discussion is not about abandoning mutual funds but rather understanding and exploring ETFs as viable investment options.

Introduction to Selected ETFs

Overview of NIFTY50 Tracking ETFs

• The first set of discussed ETFs tracks the NIFTY50 index, appealing to investors who trust India's top 50 stocks; examples include NiftyB by Nippon AMC and Nifty I ETF by ICICI approved.

• Both ETFs are analyzed based on liquidity and expense ratios, with NiftyB showing significantly higher trading volume than Nifty I ETF, indicating better liquidity for potential investors.

Liquidity Analysis

• Current trading volumes reveal that NiftyB has around 61 lakh units traded daily compared to Nifty I ETF's approximately 3 lakh units, suggesting stronger market activity for NiftyB.

• It’s crucial for investors to check liquidity over multiple days rather than relying on single-day data when assessing an ETF's viability for investment purposes.

Expense Ratios and Performance Comparison

Evaluating Expense Ratios

• The expense ratio for NiftyB is noted at just 0.4%, making it a low-cost option for investing in the index; conversely, the expense ratio for Nifty I ETF is slightly lower at 0.3%.

• Despite similar five-year returns (22.12%), differences in expense ratios could influence long-term performance outcomes between these two ETFs.

Volatility Insights

• During periods of high market volatility, such as election results day, both ETFs exhibited different levels of price fluctuation; notably, Nifty B fell by only 5.38% intraday compared to a more significant drop of 11.3% in the case of Nifty I ETF on that same day, presenting an opportunity for arbitrage buying during dips in prices.

Market Conditions Affecting ETF Choices

Daily Market Dynamics

• Investors should consider which ETF offers better pricing on volatile days when deciding which one to sell or buy; this decision hinges on real-time market conditions affecting supply and demand dynamics among buyers and sellers within each fund's trading environment.

Recommendations Based on Market Trends

• Depending on specific market conditions observed during trading sessions, either ETF may present advantages or disadvantages; thus ongoing monitoring is essential if actively managing investments between them is desired.

Moving Beyond Initial Choices: Exploring More ETFs

Introduction to Junior Indices

• The second recommended ETF tracks the Junior NIFTY (NIFTY Next 50), which includes stocks ranked from fifth through fifty within large-cap categories; its performance has outpaced traditional indices recently with annualized returns reaching up to 23%.

Sector Allocation Insights

• Unlike the heavily financial services-weighted composition seen in traditional indices like the nifty50 (35%), this next tier index shows more balanced sector exposure with no single sector dominating beyond roughly17%.

Midcap and Small Cap Opportunities

Midcap Category Analysis

• Three midcap-focused ETFs were evaluated: Mai Assets Midcap ETF (most liquid), Nippon Mid150BS (good liquidity), and ICICI Midcap IETF (decent liquidity). Mai Assets stands out due its superior volume metrics alongside lowest expense ratio at just .05%.

Return Comparisons

• While past performance does not guarantee future success, historical data indicates Mai Assets has consistently delivered slightly better returns than its competitors over three years despite all being relatively close overall.

Conclusion: Smart Beta Strategies

Momentum Investing via Smart Beta

• Two momentum-based smart beta ETFs tracking the popular nifty200 momentum30 index were introduced: HDFC Momentum & Motilal Oswal Momentum—both exhibiting similar patterns regarding recent performance trends amidst current downtrends across markets.

Final Thoughts

• Although neither fund currently shows strong positive growth due largely due timing factors related launch dates relative broader market corrections they still represent strategic opportunities worth considering given their long-term potential against benchmarks like nifty50.