Electronic Traded Funds – How Much Are You Really Aware Of?

Electronic Traded Funds – How Much Are You Really Aware Of?
  • Opening Intro -

    Similar to mutual funds but trading like stocks, an electronic traded fund (ETF) is a marketable security that keeps track of an index, commodity, bonds or assets as an index fund.

    They are traded like normal stock on a stock exchange and as such, ETFs are subject to constant price changes as they are sold and bought.


Breaking down ETFs

An ETF is a type of fund that takes ownership of the underlying assets (which can include; shares of stock, bonds, bars of gold, currencies etc) then divides the ownership of the said assets into shares. Shareholders have no direct claim nor do they directly own the investments in the funds. Instead, they own these assets indirectly.

The shareholders are entitled to a portion of the profits made can which include earned interest or dividends paid. Additionally, they may be entitled to a residual value should the investment funds be liquidated. Ownership of the funds can easily be transferred in about the same time as shares of a stock since they are traded on public stock exchanges.

Benefits of ETF

1) Low annual taxable distribution.

Since they trade less frequently than mutual funds, ETFs attract a lower annual taxable distribution charges.

2) Diversification.

Unlike a stock, one ETF contains a group of stocks such that with one share of ETF, a person owns stock in multiple companies.

3) Lower expense ratios and passive management.

Compared to other forms of managed funds, an ETF is passively managed and has a low expense ratio as opposed to a mutual funds which has a higher ratio due to costs such as management fee, shareholder accounting expenses, service fee and such.

4) Transparency.

Legally, mutual funds are obligated to announce their holdings quarterly. ETFs let investors see their holdings daily.

Drawbacks of ETF

1) The actual cost might be higher.

Trading an ETFs is normally compared with other pools of stock like a mutual fund. However, compared to investing in a specific stock, the cost might be higher.

2) Dividend yields.

You can select the stock which yields the highest dividend, but ETFs maintain track of a broad market therefore, the overall yield will average out to a lower figure.

3) Leveraged returns.

Some ETFs which may be double or triple leveraged could result in the loss of more than double or triple the tracked index.

Follow this link for more advantages and disadvantages of ETFs: http://www.revenueshares.com/retail-clients/etf-basics/etf-advantages-and-disadvantages/

Bottom line

Used by a range of investors to build a portfolio or attain exposure to certain specific sectors, ETFs have a range of benefits over managed funds such as mutual funds with the biggest one arguably being that they trade like stock. However, there are also some disadvantages to take into consideration before placing an order to purchase this investment.

Did you find this article to be helpful? Feel free to tag a friend on Facebook and other social media sites. Help your friends to make informed business decisions.

Credit Management reference:

maintaining good credit

SaleBestseller No. 1
Investing In ETFs FD (For Dummies (Business & Personal Finance))
29 Reviews
Investing In ETFs FD (For Dummies (Business & Personal Finance))
  • Russell Wild
  • Publisher: For Dummies
  • Edition no. 0 (10/26/2015)
SaleBestseller No. 2
Bestseller No. 3
Index Funds & ETFs: What they are and how to make them work for you
  • David Schneider
  • Publisher: CreateSpace Independent Publishing Platform
  • Paperback: 168 pages

Last update on 2020-03-19 / Affiliate links / Images from Amazon Product Advertising API


end of post idea for home improvement


Helpful article? Leave us a quick comment below.
And please give this article a rating and/or share it within your social networks.

facebook linkedin pinterest

Amazon Affiliate Disclosure: SayEducate.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. The commission earnings are used to defray our cost of operation.

View our FTC Disclosure for other affiliate information.

Categories: Investments

About Author