Exchange Traded Funds

Exchange Traded Funds

An Exchange Traded Funds or ETF is a marketable security that is they are financial instruments that are very liquid and can be quickly converted into cash at a reasonable price.

They basically track an index and trades like a common stock on a stock exchange.

Features

1) It gives the investors option of diversification as one ETF can give exposure to a group of equities, market segments or styles.

2) The institutional fees are lower as compared to other managed funds.

3) ETFs can be used for short selling too that is sale of security that is not owned by the buyer, or the buyer has borrowed from his broker  motivated by the belief  that a security’s price will decline in future enabling it to be brought back t a lower price which is not allowed in case of mutual funds.

4) The role of fund managers is very less as it is passive investment strategy that is value buying and holding.