WHAT IS EXCHANGE TRADED FUND? [VS MUTUAL FUNDS]
Let us understand Exchange Traded fund and Difference between ETFs and Mutual Funds.
Understanding Exchange Traded Funds (ETFs):
In the society presently, Exchange traded funds (ETFs) have begun to gain acceptance as a financial instrument as it possess distinct advantages over mutual funds. These distinct advantages have made investors begin to prefer ETFs to mutual funds. Exchange traded funds are beneficial and advantageous to investors that find difficulty in mastering the tricks in trading, making analysis and selecting stocks for their portfolios. There are various mutual funds that make provision for Exchange Traded Funds in order to make a replica of the indices on the National Stock Exchange of India. This is to provide yields and returns that are closely similar and corresponding to the overall returns of securities placed in the index. Exchange Traded funds are available on National Stock Exchange of India and are in diverse forms. Gold, Debt, Equity and International Indices ETFs are available on the National Stock Exchange of India
Exchange Traded Funds are index funds listed and traded on stocks. ETFs have paved a way of investment possibilities to investors to ensure they can invest easily and make gains. Exchange Traded Funds increases and broadens the exposure of investors to the whole stock markets in various countries across the globe and also certain sectors easily. All these can be done on a real time basis which cost lesser than other investment forms. Exchange Traded Funds is a pool of stocks that make a reflection of the composition of an index like BSE Sensex, Nifty, CNX, S&P etc. The trading value of the Exchange Traded Fund is based on the net asset value of the stocks that it represents. ETF is just like a Mutual Fund that can be bought and sold at a price that metamorphoses throughout a day.
Exchange Traded Funds possess various features and characteristics. Some of them include:
- ETFs as funds own assets such as shares of companies
- Shares of various companies are joined together and the cumulated shares create the ETFs asset base
- The cumulated assets are divided into units that listed and traded in the stock exchange as Exchange Traded Funds
- Exchange Traded Funds that are listed in the stock exchange are taken as shares and can be traded just like ordinary and normal shares.
- Exchange Traded Funds that are listed in the stock exchange can be traded like ordinary shares.
- Basically, Exchange Traded Funds are index funds
Exchange Traded Funds vs. Mutual Funds
Mutual fund is like an Exchange Traded Fund as it is also a unit that comprised of various companies equities. However, Exchange Traded Funds may differ from mutual funds in terms of tradability. The selling price of mutual fund will be the price of shares at the end of the day. Shares of Exchange Traded Funds are traded the entire day and can be bought and sold at any moment or time. Hence, Exchange Traded Funds have more marketability and liquidity.
Another difference between Exchange Trade Funds and mutual funds is that mutual fund is under the management of a financial company and its fund managers, while Exchange Traded Funds are managed by the investor himself, unless where it is disputed