ETFs stands for Exchange Traded Funds. Investments in ETFs have till recently been ignored by the mainstream stock market investors since they came into being in the nineties. According to the opinion of the stock investment experts, ETF market is about to open up unprecedented possibilities for the investors to make big and more especially during the recent slump in the economy.
Most stock market investors do not know much about ETFs thereforethey are skeptical about them. But those who do know about them have been silently reaping good profits for the past since their inception.
This, however, is not to suggest that the ETFs have been intentionally kept within folds to restrict their exposure only to the selected few. It only means that people have yet to learn more about them.
ETFs are a fast growing and exciting segment in investment market. They have tremendous advantages over several investment options, especially the mutual funds and may replace them in near future by virtue of their flexibility, returns and cost efficiency. Moreover, ETFs deliver all the benefits of stock investment minus their loss potential.
ETFs have been around since the 1990s. Though their growth was slow at their earlier stage of inception, they are now growing at a phenomenal pace. And as the time passes, more and more investors are getting attracted towards them.
It is, therefore, the time investors knew about the real income potential of the ETFs and the other advantages so that they too could make profit from them. While the investors can continue investing in stocks and shares, they may widen their portfolio by investing in ETFs as well.
It would come as a welcome surprise for the doubting that ETF market can deliver double the earnings at half the efforts in ordinary stock market provided they tap the right buttons and manipulate the ETF market prudently. Even the Individual Retirement Account-IRA- holders can fatten their profits by exploiting the rich profit potential of the ETFs.
Those who have suffered losses due to the recent bear run in the stock market, or, are wary of investing in them, can consider ETFs as an attractive investment option with minimum possibility of losses. The only thing to know about investing in ETFs is the deployment of right strategies to make profits from them. Quite possibly some traders did invest in them, but could not make encouraging profits. The reason did not lie in the ETFs, it’s because the investors did not go to the right direction in investing in them.
What exactly is an ETF?
An ETF is basically a combination of stocks, bonds and other investment options similar to mutual funds. But unlike mutual funds, ETFs have more open options than the mutual funds. They trade like the stocks. The investor can buy or sell his portfolio during the normal exchange trading hours. This means you can have more access your ETF than a mutual fund.
You cannot buy or sell any mutual fund as fast as you can trade a stock in stock market. You cannot choose your price to sell or buy a mutual fund as you do in case of your stock. The price at which you buy or sell your mutual fund is determined at the end of the day when the market closes for the next day.
Generally, a fund manager manages your mutual fund and you may and may not agree with his investment strategies. Moreover, the fund managers keep coming and leaving and the investment policies also keep changing accordingly.
In case of investment in stocks and for that matter in ETFs, you are the master of your planning and investment. You can buy or sell a stock as and when you like. Your funds are immediately credited or debited to your account.
While you have to pay heavy fund management fees for the mutual funds, ETFs much more cost and tax efficient than the mutual funds.
The brokerages for ETFs generally are the same as those in stock trading. There are no minimum buy requirements or any restriction on holding periods. Both these conditions apply in mutual funds.
You can, in fact, buy as little as one share of an ETF as you can buy one share of any stock.
ETFS have a built in advantage of having a diversified portfolio like that of a mutual fund without the attendant disability to trade in or out of a mutual fund as and when you like.