ETF or Exchange Traded Funds is an investing feature for investor which has a combination of index mutual fund and the flexibilities of individual securities. If you invest in ETF the advantages of the fund are as follows.
1.Diversification: ETF trading diversifies the portfolio of the individual. Range of stocks is always better than any one particular stocks. It is believed that the average earning is higher in a diversified portfolio rather than Investing a single stock. It is a proven fact that the average return on investment is always better in diversified portfolio than a single portfolio.
2. Less cost: Expense ratio is the cost borne by a mutual fund company to run the fund. Different types of expenses include record keeping, custodial service taxes, legal expenses, accounting and auditing fees. The huge cost of the fund is the cost of the fund manger who manages the fund.
3. Tax advantage The tax benefit can be availed by the investor by investing in mutual fund through ETF fund. If one wants to gain from the ETF trading the investor needs to very clear the use of fund for short term and long term. To reap a profit from ETF speculation the person investing must clearly know if the investment has to be done for a short or a long term period.
The services of ETF trading.
1. You can get the get the benefit from ETF only if you use it very systematically in proper way. By the end of the business hour the mutual fund prices are announced. All purchasing done gets the same price on the same day.
2. ETF can be sold or purchased by any investor for trade on margin and short selling of stocks. A customer can speculate on ETF for a small period of time.
3. Short selling strategies and trading on margin are some options to trade on ETF stocks.
4. ETF funds are linked to the index funds which are generally linked to the low turnover and broad fund diversification.
ETF is a very attractive financial instrument to keep track of the sectoral performance, investment pattern, fixed income, global investment, trading in commodities and currency. ETF gives the opportunity to trade at a minimum cost. It is as good as trading equity in the open market. ETF is managed by the fund managers and it can be traded in market. Any investor can choose an ETF fund to purchase stocks in India, stocks in other global market, fixed income and alternative income. It is essential to examine the long term goal before you select the ETF. The return and risk factors remains the same as any other investment option.
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