Exchange Traded Fund !
Trade the Mutual fund on Stock Exchange.
A pooled investment security called an exchange-traded fund (ETF) functions very similarly to a mutual fund. ETFs often follow a certain sector, index, commodity, or other asset, but unlike mutual funds, they can be bought or sold on a stock exchange just like normal stocks can.
How Do ETFs Work?
Less expensive transactions and fees
ETFs have cheaper transactions and fees than mutual funds. This is partially because they are exchange-traded, thus brokers or the exchange cover usual fees rather than the mutual fund.
Access to markets
ETFs make it easier for normal investors to invest in difficult-to-access asset classes, such as stocks and bonds in developing markets, gold or other commodities, the foreign exchange market, and cryptocurrencies. ETFs can be shorted, margined, and leveraged for advanced trading.
ETFs are more transparent than mutual funds and hedge funds. Mutual funds, institutional investors, and hedge funds publish their holdings every three months, so investors don't know if the fund is keeping to its investing strategy and managing risks adequately. ETFs share their daily portfolios so investors can follow their money.
Liquidity and Price Discovery
ETFs are more liquid than mutual funds, which can only be bought or sold at the end of the day. The manner they are produced and redeemed balances out pricing arbitrages, bringing ETF share prices back to fair market value.
Features Of ETFs
ETFs have cheaper management fees and expenditures than actively managed mutual fund investments.
Elimination of Manager Risk
With the objective to track an index and not outperform it, manager risk is virtually eliminated in an ETF.
Types Of ETFs
ETFs can be used to make money, speculate, raise prices, and hedge or mitigate portfolio risk. Here's a list of ETFs currently available.
Currency Exchange Traded Funds
Commodity Equity Funds
What to look for in an ETFs
One of the best ways to narrow down your ETF options is to use an ETF screening tool. Many brokers offer these tools as a way to sort through the thousands of ETF options. You can usually search for ETFs using some of the following criteria
Trading volume over a certain period of time lets you compare how popular different funds are; the higher the trading volume, the easier it may be to trade that fund.
Past performance is not a good indicator of future returns, but it is a common way to compare ETFs.
The portfolios of different funds are often taken into account by screener tools, which lets customers compare the different holdings of each possible ETF investment.
Many ETFs are commission-free, which means that they can be traded without any fees. But it is worth asking if this could be a deal-breaker.
The lower the expense ratio, the less of your money goes to administrative costs. Even though it may be tempting to always look for funds with the lowest expense ratios, sometimes more expensive funds (such as actively managed ETFs) do so well that they more than make up for the higher fees.
Difference between Exchange Traded Funds and Index Funds
|Parameters||Exchange Traded Funds||Index Funds|
|Base||It will trade like other stocks.||They are like mutual funds.|
|Basis for pricing||Demand and supply of the security/stock in the market.||Net asset value of the underlying asset.|
|Trading costs||Higher costs.||No transaction fees / commission.|
|Expense ratio||low.||Comparatively high.|
|Initial investment||No minimum investment.||It purchases in regular investments through SIP.|
If you are confused about ETFs for long-term buy-and-hold investing, experts say, ETFs are a great investment option for long-term buy and hold investing. It is so because it has a lower expense ratio than actively managed mutual funds that generate higher returns if held for the long run.
Exchange traded funds (ETFs) are ideal for beginner investors due to their many benefits such as low expense ratios, abundant liquidity, range of investment choices, diversification, low investment threshold, and so on.