Exchange Traded Funds (
) allow immediate divarication for smaller investors. This means
that ETFs trade like stocks. ETFs have all the benefits of plain
old index funds. Exchange Traded Funds are similar to mutual
funds. ETFs can be bought and sold on an intraday securities
exchange and can be composed of a basket of securities. ETFs are
traded at the same price of the net asset value of the underlying
assets. They represent an underlying instrument group with a
common "theme," i.e. currency, health services, geographic
region, gold, oil, financial services or a particular index. This
is an investment fund that is traded on the stock exchanges and
holds assets such as bonds, stocks, commodities and net asset
value over the course of the trading day. This can be an
attractive investment for the investors because of its low cost,
tax efficiency, and stock-like figures. ETFs are one of the most
popular types of Exchange Traded products.
Importance of Exchange Traded Funds
ETFs have the benefit of picking individual dividend stocks that
every investor wants. Investors can protect themselves against
volatility with ETFs. This fund is full of advantages some of
� Most of the ETFs are indexed, so they will perform
better than actively managed mutual funds. They can also beat out
� The expense ratios of ETFs are much lower, in an
approximate range of 0.25% - 0.75%. This can be bought or sold in
as little as one-share increments. Their shares can be purchased
on margin and sold short as they are publicly traded securities.
� ETFs have the opportunities for option and
short-selling because they are traded on a securities exchange.
They are also beneficial in the way of transparency. They have
transparent portfolios and are priced at frequent intervals
throughout the trading day. ETFs are completely transparent so
that investors have the advantage of seeing which securities are
held in ETF.
� ETFs have the low turnover of their portfolios
securities so they generate low capital gains. They can be shared
with other index funds and theirs tax efficiency is further
enhanced because they don't have to sell securities to meet
investor redemptions. Their tax gain distributions are more
frequent with mutual funds.
� By investing in this fund, investors can get the
benefit of rebalancing their portfolio in an economical way. This
fund provides verities of markets, i.e., broad-based indices,
broad-based international and country specific indices, bond
indices, and commodities.
� Some investors also can invest in Exchange Traded
Fund shares as a long-term investment. These funds frequently
implement the market timing of investment strategies.
How to get an ETF
You can buy the ETFs everywhere you can buy a stock. They can
also be purchased by a broker or a broker account. It is also
very important before committing a brokerage firm that you must
make sure that the firm is offering everything you are looking
for. When you want a high quality ETF that can fit into your
investment, you should evaluate ETFs in the same way like any
other mutual fund. As an investor you should avoid those ETFs
that track esoteric benchmarks. Always remember to consider the
costs before investing in the ETFs, the expense ratio can tell
you the cost of an ETF.
As ETFs trade like stocks, investors can buy and sell the shares
on an exchange at a determined price by demand and supply, but
they must pay the brokerage commissions every time. The ETFs'
market price can be different from the net asset value.
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