Share Market

An exchange-traded fund or ETF is an investment fund that is traded on stock exchanges. They hold a similar funda to stocks. An ETF holds assets like stocks, commodities, bonds and trades which are close to its net asset value over the course of the trading day. ETFs can be as attractive as investments because of their characteristics like low costs, tax efficiency, and stock-like features. They are the most popular type of exchange-traded product

ETFs generally provide very easy diversification, low expense ratios, and tax efficiency of index funds. All this, while maintaining all the features of ordinary stock, such as limit orders, short selling and options. Some investors invest only in ETF shares for a long term basis as they can be economically acquired, held and disposed of. This is done by investors for asset allocation purposes. There are also times when investors trade ETF shares frequently to implement market timing investment strategies.

ETFs come along with many advantages like low costs, buying and selling flexibility, tax efficiency, market exposure and diversification, transparency and more. Lower costs: ETFs generally have lower costs than other investment products because they are mostly not actively managed and are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions. These funds typically have lower marketing, distribution and accounting expenses.

Buying and selling flexibility: ETFs can be bought and sold at current market prices at any time during the trading day. It is not like other investment options like mutual funds and unit investment trusts, which can only be traded at the end of the trading day. The shares of these funds can be purchased on margin and can be sold short being a publicly traded security. This enables the use of hedging strategies and using stop orders and limit orders for trading. This further allows investors to specify the price points at which they are willing to trade.

Tax efficiency: ETFs generate relatively low capital gains because they have low turnover of their portfolio securities. They share this advantage with other index funds. It counts as an advantage because tax efficiency gets enhanced by not having to sell securities to meet investor redemptions.

Market exposure and diversification: ETFs provide an economical way to rebalance portfolio allocations and to equalize cash by investing it quickly. It provides Transparency in the sense that whether an index fund or an actively managed fund, it has transparent portfolios that are priced at frequent intervals throughout the trading day. These advantages stem from the fact that these funds are index funds.