One of the key aspects of attaining success in the investment business is to have a good understanding of how the different funds function. In this write-up, you can get basic details of the ETFs and how they add value to your investment portfolio.
Over the past few years, the ETFs or Exchange Traded Funds have been gaining immense popularity among the investors from around the world. Whilst, several new investors wish to invest in ETFs, not many people know its basics and often tend to confuse it with the regular mutual fund schemes. If you are a newbie investor, it would help you to have a basic understanding of the ETFs before you jump into investing. Some of the most important things that every investor must know about exchange traded funds are explained further.
- Typically, the Exchange Traded Fund encompasses a wide variety of underlying assets including real estate investment trusts, oil, bonds, shares, stocks and gold. These funds are essentially index funds and are traded just like the usual stocks on the stock market and all the major stock indexes have ETFs based on them. Any investor who has a brokerage account for trading, the same can be used for trading ETFs.
- One of the unique features of ETFs is that unlike some of the no-load index funds there are no minimums for them. This implies that no matter if you are investing in gold ETF funds or any other stocks in the market, you can choose to purchase as many and as few as you want; it is totally your prerogative.
- Much like the stocks, ETFs are continuously priced. This implies that you can hold onto your fund for five minutes, for five months, or more, it your choice. However, you need to know that while dealing in ETFs, the trading orders are only accepted during the trading hours, but the transactions are actually executed after the market is closed.
- Another significant feature of these funds is that they can be shorted. However, not all ETFs can be shorted; some of the funds can be very hard to short. If you are an amateur investor, it is advisable that you refrain from shorting the funds since the losses can be unlimited.
- You can trade ETF options. Although this is not recommended for inexperienced traders, options give you the right call to buy or sell the shares of the ETFs.
How can ETF improve your investment portfolio?
As compared to the regular mutual funds, the exchanged traded funds are pretty inexpensive and they make for a cheap buy. But, you need to know that these funds have an annual fee, which are lower than the mutual funds. The fees for ETFs can be as low as 0.09% of the asset.
Expert investors suggest that margin trading is not meant for fledgling traders, however, if you have the right knowledge of the market and are willing to take risk, margin can not only help you earn valuable returns but also offer little stability to your portfolio. These funds can be margined and there are plenty of options available for them which allow the investors to diversify their investment as well as implement several investment strategies.
Disclaimer: Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before investing.