What you need to know about investing in ETF via apps
In our DIY columns, we have been covering quite a few MF aggregator apps that can come in handy while making direct MF investments.
However, for investors keen on Exchange Traded Funds (ETFs), not all fintech apps are helpful. This is because ETFs can only be bought or sold through a demat-cum-trading account held with a broker.
Investors relying on aggregator apps such as CAMS cannot invest in ETFs including gold ETFs.
While these apps allow aggregation of your investments made in your existing demat accounts — through consolidated account statement (CAS) — one cannot transact in stocks or ETFs in these apps.
However, certain fintech apps such as Fundsindia, Groww and Paytm Money are also SEBI-registered brokers, hence investors can use these apps to invest in ETFs.
A few other apps, such as Kuvera, offer an investment platform for some of their ETF investors. This is possible through their partnerships with other brokerages. For instance, Kuvera has tied up with Zerodha, Aliceblue and Trustline. Only investors who already have demat accounts with these brokerages can trade through the app — which have to be again approved in the broker’s platform.
The ease of using a single app for all your investments can prompt you to open a demat account with the brokerages the investment app has tie-ups with.
Another demat account?
If an investment app prompts you to open a demat account, think twice to assess if you are better off using your existing demat accounts. That apart, do double-check the brokerage tie-ups of the platform. You can only transact in the demat accounts offered by a SEBI-registered broker.
Also, be mindful of the various charges and fees levied by the brokerage tie-up. Paytm Money, Groww and Zerodha are all discount brokers and charge a flat fee of ₹20 (maximum) per order. Unlike most other discount brokers, Zerodha charges a fee for account opening — ₹200 and an annual maintenance fee of ₹300.
The time taken to open a demat account using these apps is minimal, which might attract you towards opening one right away. For instance, Groww takes about 24 hours to open a demat account after all necessary documents have been submitted (online).
But discount brokerages have their own limitations. For instance, those of you who are used to a ‘call and trade’ service offered by your traditional broker might not be able to do the same with discount brokers such as Groww. Besides, you will also have no branch support while opening an account with Groww or Paytm Money. Zerodha too has only 22 branches in the country, compared to more than 150 branches of ICICI Securities and over 2,200 branches (including sub-broker) of Motilal Oswal.
In the wake of the recent incidents relating to misuse of customer demat balances in Karvy Stock Broking and Anugrah Stock and Broking, investors need to be wary of frivolous opening of demat accounts. If you already have a demat account with a traditional broker, their online platforms might come in handy for making your ETF investments. Besides, you can always consolidate and view your portfolio (investments across asset classes) on most of the fintech aggregator apps, by simply uploading your CAS.
Alternative to Gold ETFs
For investors looking to invest only in gold ETFs, you can instead invest in FoFs ( fund of funds), which don’t require a demat account. These are essentially funds that in turn invest in gold ETFs These FoFs invest in the Gold ETFs of their respective fund houses. One can perform the usual checks of expense ratios and tracking errors while narrowing down on the investment choice in a Gold MF. Liquidity, might not be of concern in the case of Gold FoFs too, unlike in the case of ETFs.