subject: Investing In Etfs - Associative Advantages [print this page] Most of the people think that EFTs and mutual funds are the same. Let me clear this misconception of yours, EFTs and mutual funds are completely different from each other. EFTs are traded in the stock market as BSE. You can directly purchase EFTs from the bank which is issuing EFTs in the stock market. They are different in their salvation structure and tax competence from conventional mutual funds.
Following are some of the associative advantages of investing in ETFs over mutual funds:
1.When a mutual fund fails it should sell its stock holdings and distribute the money between the funds owners. As ETFs are bought and sold on an exchange, there is no distribution of profits and not stock holdings are sold. The ETFs distribute profits only when the make up of the company changes, but this doesnt happen quite frequently as in mutual funds.
2.People are not asked to pay redemption fee when they need to liquidate their positions in the ETFs as it happens in mutual funds. The ETFs charge a lower annual fee compared to mutual funds. (NOTE: In very rare cases where investments are low, brokers fee makes a higher % of the investment, but usually investors are not able to meet the minimum investment needed in mutual funds).
3.The structure in which ETFs operates allows investors to liquidate easily and the investors of mutual funds have to wait till the end of the day. The option of limit order trading is also available in ETFs. In comparison, this option is not available in mutual funds.
4.As ETFs are traded in an exchange, all trades are done on market rate. In mutual fund one has to wait till the end of the day to trade. One can easily buy ETF at a good rate at any time of the day.
5. If one invests in mutual funds he will have to invest a minimum sum of money. ETFs do not have a minimum investment rule which means that one can invest one penny or even thousands in ETFs.
If benefits are not applied accurately they might turn into liability. For example one investor might buy at a higher rate and sell at a lower rate in intra day activity. Brokerage fees might even affect investors than a mutual funds management fee.
Before making any kind of investment always take professional advice. If used properly then ETFs are a safe option to consider for making an investment but you must have sufficient amount of information on ETFs before making any final decision.
by: Max Info
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