Understanding why you should invest in currency ETFs in India: A comprehensive guide

You can fulfill your curiosity about entering currency markets. You can place market or limit orders to take an exposure in the volatile currency market!

Currency ETFs in India are the ticket to taste the intimidating foreign exchange (FOREX) market for retail investors. It provides an opportunity to gain exposure to the currency market. What should you do? What are the advantages and disadvantages?

Let's dig deeper with a logical point of view!

Highlights:

• Currency ETFs are the doorway to exploring the currency market.
• You have two options to invest in the ETFs: single or multiple currency ETFs.
• You can benefit from the price movement of foreign currency against your currency.
• Order types like limit or market orders are available for buying ETFs.

Also Read: Which Are The 5 Biggest Asset Management Firms Managing Mutual Fund Investments In India?

What are the Types of Currency ETFs?

Currency ETFs come in two types: single-currency and composite currency ETFs. The first type of ETF focuses on one specific foreign currency, like the US dollar, euro, or British pound. On the other hand, multiple currencies that share common characteristics (For example- Asian or European currencies) are there in the composite currency ETFs.

How Do They Work?

ETFs hold deposits of foreign currency or derivatives contracts. They mirror the exchange rate movements of the underlying currency. The fund manager actively manages the ETF, buying or selling foreign currency assets to keep it in line with the benchmark index.

What Are the Advantages of Currency ETFs?

There are many advantages like-

1. They allow you to peak in the FOREX market without opening a dedicated Forex account. 
2. You can benefit from the rise or fall of foreign currencies against our Indian rupee.

Also Read: Unveiling The Fund Shift: Why Multi-Cap Funds Are Stealing The Spotlight From Flexi-Cap

What Are the Disadvantages of Currency ETFs?

Some disadvantages are:

1. They are highly volatile.
2. They might not be as liquid as traditional investments.
3. Tracking errors can occur due to transaction costs and management fees.
4. Price movements are influenced by economic, political, and social factors or external news.

How to Invest in Currency ETFs?

Investing in these ETFs is similar to investing in regular ETFs. 

1. Open a demat and trading account with a broker offering access to currency ETFs.
2. Research and select the ETF that aligns with your investment goals.
3. Place your order in either a market or limit order.

Wrap Up

Currency markets were a mysterious sector to some extent. But, with these ETFs, the door is open for the retail investors to enter. However, exercising caution while moving in this highly volatile market is a must-do for safety!

Disclaimer: This article is intended for general information and should not be construed as investment, tax, or legal advice. You should obtain independent advice when making such decisions.

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