Exchange Traded Funds are different types of equities such as bonds, shares and other types of investments. These function as securities and are used to track the essential indices. These funds are known as exchange-traded because just like stocks, these are also traded on the stock exchange market. These are different from mutual funds which are not traded via the stock exchange.
ETFs are of several types-
- Bond ETFs
- Industry ETFs
- Inverse ETFs
- Commodity ETFs
- Currency ETFs
All these ETFs are for investing in different bonds, crude oil, gold, Euros or Canadian Dollars, technical industry, banking industry, and oil and gas sector. By investing here one can have multiple shares at the same time. ETF dealings are made both by online brokerage accounts and traditional broker-dealers also. These funds have gained a lot of popularity because people are looking for funds other than mutual funds.
Pros of investing in ETFs
- One can invest in multiple securities at the same time. By following this way, the range of investment becomes diverse and secure.
- The trading is similar to that of stock and hence, it is much easier. One can easily trade online or with a live broker as one feels comfortable.
- These are inexpensive in comparison to mutual funds. Mutual funds have a high fee whereas ETFs trading is just like shares, therefore the fees are low.
- Maximum dividends do not need to be reinvested from time to time. They get reinvested automatically. Only unit investment trust ETFs do not get invested routinely.
- Tax charges are minimal in the case of ETFs. The ETF portfolio is managed passively which comprehends to a few capital gains.
- The prices of these shares usually do not deviate from their actual prices. ETF trading continues all day at a certain value which is generally nearer to the cost of the securities that lie within.
Cons of investing in ETFs
- In some cases, the depositor’s choice is limited to only large-cap stocks which require more money. It sometimes limits the choice of people who want to buy low priced shares.
- ETF investments can turn out to be less profitable for long-term investors because they do not get to profit from the daily price changes.
- The costs are elevated when compared to actual stock investing because stocks have no fee for their management.
- Many of these funds do not pay dividends and because of this, the increments may not be very good at times. The dividends on the stocks, on the other hand, are mostly good and better paying.
- The losses in these funds can grow very fast and in a very long-term investment can prove to be hefty failures too. This makes it a speculative investment.
ETFs worth investing are:
- Energy Select Sector Index (INDEXSP: IXE)
- Pacer Funds TR/US CS Cows 100 ETF (BATS: COWZ)
- ProShares TR/Online Retail ETF (NYSEARCA: ONLN)
- ALPS International Sector Dividend Dogs ETF (NYSEARCA: IDOG)
- WisdomTree U.S. SmallCap Dividend Fund (NYSEARCA: DES)