What Are Exchange-Traded Funds?
Exchange traded funds are the funds that are traded in the stock market as an investment fund the same as equity. But the difference is that Exchange traded funds are such that they are composed of the stocks, commodities, or bonds which are traded near to the value of net asset value of such assets. Here is FinanceShed, with some points you should consider before investing in Exchange Traded Funds.
Exchange traded funds are very much in demand in the year 2018 as there are many no of investors who are eyeing towards the Exchange traded funds so there will be many fluctuations and profits in the Exchange traded funds compared to last years. As per the report, the profit in the Exchange-traded funds in last year amounted to $295 billion. The total worth of the Exchange-traded funds in the present market is about $3.4 trillion.
As the market of the Exchange traded funds have been in the good trend many of the new Exchange traded funds are getting introduced into the market. In last year 269 Exchange-traded funds have been introduced and 151 have been closed down in the market.
Advantages Of Exchange-Traded Funds
There are several advantages of Exchange traded funds as they are easily traded through-out the country like a stock
- There is real-time buying and selling of the investment possible at the value equal to its net asset value.
- You can invest in these Exchange traded funds through just one click as you do in stock and also the limit orders are allowed.
- You can enjoy the flexibility and diversification in the funds you invest also it is favorable for small investors as you can invest in one unit also.
- The minimum investment you can go for is a single unit thus giving independence to the investors to invest even a smaller amount.
Dis-Advantages Of Exchange Traded Funds
- They provide lower dividend yields than owning a high-yielding stock or group of stocks. The risk is certainly lower on the contrary.
- There are fewer chances of diversification as some companies could leave potential growth opportunities out of the reach of ETF investors.
- The biggest factor that plays a role in the ETF is liquidity. If not traded properly there can be chances of liquidity getting lost.
- The ETF doesn’t perform exactly how it’s underlying securities or benchmark perform and there are certain tracking errors in Exchange Traded Funds.
Some analysts predicted that 2019 will see the first zero-fee ETF. If this comes into force fund issuers will be forced to deal with the prospect of cutting fees to zero in order to sustain in the competition.
Generally, the expenses of the Exchange traded funds are very low there are certain specific costs related to the Exchange traded funds. As people transact in stocks there will be brokerage or commission charged on the value of transactions, in Exchange traded funds also there will be these costs involved and also the difference between ask bid price can also be treated as a cost of investment.