You may have come across stories of affluent persons who have suffered unbearable losses by investing in the stock market. None of us would want to see ourselves in such a situation. While it is difficult to gauge the reason as to why such losses were incurred, we can try to avoid such situations by practicing a basic investment philosophy called diversification.
Diversification means “not putting all your eggs in one basket” – or simply spreading your investment over various sectors. The more diversified you are, the less likely you are to incur losses.
You may have heard of established companies getting engulfed in scandals, controversies, etc. Once considered as rising stars & “hot stocks”, companies like Gitanjali Gems, IL&FS, and DHFL have all witnessed a massive decline in their stock prices. Even stellar companies like Infosys – with the recent whistleblower complaint – are not immune to such shocks.
When you diversify, you spread your money across different stocks, or even across different asset classes. This way, even if few companies in your portfolio experience a negative shock, your overall portfolio isn’t impacted as much by such moves.
Think of the Nifty-50 index, which has 50 of the largest companies by market-cap in it. When Infosys crashed recently, the Nifty wasn’t impacted as much, and in times since, the Nifty-50 index has actually moved up & even reached all-time highs!
So how can you diversify? Well, you can either do it yourself by adding stocks with low-correlation to your portfolio. Or, you can invest in readymade portfolios that are inherently diversified – e.g. indices like the Nifty-50. And perhaps the best way to invest in such diversified indices are with Exchanged Traded Funds (ETFs).
What are ETFs?
ETFs are baskets of securities that are traded, like individual stocks, on an exchange. They track an existing index like the Nifty-50, following a systematic rules-based approach to selecting stocks that is predefined and transparent. These funds combine the diversification benefits of mutual funds with the liquidity and trading advantages of single stocks. ETF instruments have gained traction amongst investors who are less active and risk-averse. If you are new to the term ETFs & want to know more, check out our ETF starter guide.
HDFC Platinum ETF smallcase:
Even though trading in ETFs is simpler than trading in individual stocks, there are many parameters to check before making the investment. An ETF with a preferred benchmark, high trading volume, low tracking error, and low expense ratio is considered ideal. Investors may require a lot of time and some expertise to track such ETFs and invest in them. To make it simpler and easier to invest in ETFs the top research analysts from HDFC securities have tested these parameters and bring to you a readymade ETF portfolio called the “HDFC Platinum ETF smallcase”.
The ETF Trinity:
HDFC Platinum ETF is a combination of three successful ETFs namely NIFTY50, NIFTY Next 50, and NIFTY bank.
- NIFTY 50 tracks the behavior of a portfolio of blue-chip companies, the largest and most liquid Indian securities. It includes the top 50 of all companies listed on the NSE, accounting for 13 sectors of the economy. This index is a true reflection of the Indian stock market.
- NIFTY Next 50 or the NIFTY junior represents the next 50 companies after the NIFTY 50 companies listed in the NSE. This index includes emerging blue chips and/or future leaders in their respective sectors. It has a well-diversified portfolio across 14 sectors. NIFTY Next 50 index has significantly outperformed the NIFTY 50 index since its inception.
- NIFTY Bank Index is comprised of the most liquid and large capitalized Indian Banking stocks. It provides investors and market intermediaries with a benchmark that captures the capital market performance of Indian Banks. The Index comprises of maximum 12 companies listed on NSE.
The HDFC Platinum ETF smallcase participates in the India growth story by investing in fundamentally sound and stable companies. To ensure that only stocks that meet the criteria remain in the portfolio as well as to eliminate losing stocks, this smallcase is rebalanced every quarter. This smallcase follows a low-risk and stable-return strategy with a historical CAGR of ~9%.
If you are a long-term investor with SIPs every month & cannot actively track the market, then the HDFC Platinum ETF smallcase can be an ideal option.
HDFC securities launched smallcases in November 2018, and the HDFC securities Research team has created & manages 5 smallcases since. smallcases are portfolios of stocks/ETFs that have an underlying theme or an established investing strategy. smallcases are inherently diversified, have no additional cost other than the standard brokerage, and prove to be far more cost-efficient than mutual funds in the long-run. Login now with your HDFC Securities account to invest in smallcases.