Exchange traded fund is a collection of securities or a stock just like mutual fund, but unlike mutual fund, ETF are listed in the stock exchange and can be traded in the stock market just like an any other stock can be bought and sold anytime during the day.
ETF can contain as many securities as possible or investment types, like stocks, bonds and commodities or a mixture of all of the different investment types. It has an associated price just like a single stock so that, ETF can be easily bought and sold in the market.
Prices of ETF fluctuates all day during the market hour as people keeps buying and selling the ETF like any other stocks, which is not possible in mutual fund which can be traded only once a day, after the market closed. Also ETF tends be more liquid and cost effective than the Mutual Fund.
Now ETF can be different types based on the investor’s objective of earning generation and speculation or to hedge a portfolio.
1: Commodities ETFs : mainly diversifies into the valuable tangible assets like gold, crude oil.
2: Currency ETFs: pull of investment mail involve foreign currency like dollar, Euro and Pound.
3: Bond ETFs: this kind of investment portfolio contains mainly the government and corporate bonds.
4: inverse ETFs: Then we have Inverse ETFs, which attempts to generate income while the price goes down or in other words we are doing short in the fund. Where Investor are expecting the price to go down.
1: In ETFs you can get access to various stocks and investment types across various industries right into your portfolio.
2: Usually ETFs are tend to have low expense ratios and low broker commissions.
3: If you want you can also involve in target industries.
4: ETFs are usually more liquid in nature so people can buy and sell during market period.
1: Some Active managed ETFs tends have higher fees involved.
2: Few and single focused ETFs limited the potential for the diversification in your portfolio.