ETF Funds or exchange traded funds, are traded on the stock exchange as securities. The ETF is a vehicle similar to a mutual fund for holding bonds and stocks which are traded at around the same price as would be the underlying asset. You will find that many if not most ETF funds track an index such as the S&P 500.
While offering similar advantages as do mutual funds they are traded as stocks in the secondary market and may be purchased or sold as you would other stocks. An individual with a demat account can trade these funds if he or she so wishes.
There are many forms of ETF funds and they can be selected by you the investor as per your requirements. You can choose ETF gold funds, ETF oil funds or a variety of commodity ETF.
Lets take a look at how ETF prices work out. Prices are in general in line with net asset values of the underlying portfolio, as mentioned. As an example take Benchmark Goldbees fund which replicates the NAV as 1 gram of gold. Thus you can therefore purchase 1 gram of gold in demat format just by purchasing 1 unit of the Benchmark Goldbees fund and paying for brokerage fees.
ETF vs mutual funds – ETF funds are very low cost with more flexibility than mutual funds with lower annual expenses and lower transaction fees. ETF funds although may seem to be a fairly new thing on the market are not – they have been around since 1993 in the US.
If you have not already done so, now is the time to consider adding ETF funds to your portfolio.
Related posts:
