Mutual
funds are a
traditional
component of
most
investors
portfolios,
but
exchanged
traded
funds, or ETFs, have
been gaining
popularity
over the
past decade
as well. In
recent
years, more
investors,
brokers, and
financial
advisors
have been
using ETFs,
and they
have been
included in
many company
retirement
plans.
The
security, as
well as the
traditional
aspect of
mutual
funds, and
their stable
reputation,
however,
still carry
a wide
appeal for
many
investors.
This article
can help you
determine
which type
of fund is
best for you
and your
investment
options.
Like
traditional
mutual
funds, ETFs
contain many
securities,
or stocks
and bonds.
The
difference
between
these and
mutual funds
lies chiefly
in the way
that
investors
can buy and
sell shares,
since when ETF
investors
wish to
redeem their
fund shares,
they are
required to
trade with
other market
investors,
and this
requires the
use of a
broker who
can help you
decide which
option is a
better fit.
Exchange
traded funds
are both
priced and
traded on an
exchange,
either, the
American
Stock
Exchange,
the New York
Stock
Exchange, or
the Nasdaq,
throughout
the course
of the
business day
in the same
manner as
stocks.
Traditional
mutual fund
prices are
set once a
day, and
investors
are required
to place
their orders
before a
certain time
in order to
get the
price of the
day. With
ETFs, unlike
mutual funds
you can use
these funds
the same way
that you
would a
share of
stock,
including
setting
market and
limit
orders,
buying on
margin, and
shorting.
Since ETFs
must be
traded with
other market
participants,
ETFs
generally
have two
prices the
net value,
or NAV,
which is
determined
on a daily
basis based
on the
ending value
of both its
portfolio
and accrued
expenses,
and its
share price,
which is
determined
by the ETFs
supply and
demand
profile in
the market.
Although
ETFs are not
immune from
taxes, the
good news is
that they
are
structured
to enable
investors to
shield
themselves
from capital
gains better
than they
would with
conventional
funds. Since
ETFs are
index funds,
they
typically
trade at a
lower value
than most
actively
managed
funds and in
most cases,
should
generate
fewer
capital
gains. And
since most
investors
frequently
buy and sell
shares of
ETFs with
other
investors,
the ETF
manager does
not have to
worry about
selling
holdings,
which can
trigger
capital
gains, in
order to
meet
investor
redemptions.
