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ETF- All that you need to know about EXCHANGE-TRADED FUNDs

EXCHANGE-TRADED FUND (ETF)

ETF holds for EXCHANGE TRADED FUND, it is a type of investment fund that deals on stock exchanges like stocks. An ETF is used to hold securities or assets  such as shares, bonds or commodities.

ETF can be seen as the attractive investments because of the advantages of low cost, tax efficiency. But some restrictions made only large brokers to trade in shares of an ETF directly because of the agreement they have with an ETF distributor. Other individuals can trade through retail brokers in secondary markets.

ETF is simply a fund handled by an entity having assets such as shares or bonds and have a structure that includes the division of ownership of itself  into securities and held by shareholders.

ETF’s are somewhat similar to mutual funds, the major difference is that shares in an  ETF’s can be bought or sold anytime like normal stocks through registered brokeres with the firm.

ADVANTAGES OF ETF:-

1) The most attractive advantage of ETF is their low cost that makes them different from other investment products.

2) As already mentioned they have the edge of buying and selling them at anytime on market prices during the trading day, unlike mutual funds that can only be sold at the end of the trading day.

 

TYPES OF ETF’S:-

1) Bond ETF– The ETF that deals in bonds are bond ETF’s.

2) Commodity ETF–  These ETF’s focuses on investing in commodities such as agricultural products, valuable metals etc. They are just like shares but extends our hand to hold some extraordinary things.

3) Inverse ETF- These are those type of ETF’s that are traded on a public stock market.

Other types of ETF are stock, leveraged, index, currency ETFs.

 

RISKS:-

1) The difference between return on ETF and its assets is known as tracking error. The error is calculated on the basis of existing price of ETF and its reference.

 

2) Some organizations such as IMF are paying regular attention to ETF’s as there is problem of transparency, and increased complexity.

3) ETF buys or holds the commodities that may affect the targeted consumers and also affect the prices.

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Prateek Gupta

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