What are Exchange Traded Funds?

Exchange Traded Funds or ETFs according to the Investopedia is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

Where are Exchange Traded Funds Found

Where are Exchange Traded Funds Found?

Exchange Traded Funds usually found on shares of stock, bonds. Oil futures, gold bars, foreign currency because it is a fund type which owns underlying assets, and one more thing, ETF divides ownership of those assets into shares.

ETF Shareholders

Exchange Traded Funds Shareholders, well if you want to be one, don’t directly own or have any direct portion to the underlying investments in the fund, but indirectly own these assets. ETF Shareholders are then given a portion of the profit, some of which are the dividends paid, and ending up acquiring a residual value in case the fund is liquidated.

Residual Value according to Investopedia is an estimate of how much it will be worth at the end of its lease, or at the end of its useful life. The lessor uses residual value as one of its primary methods for determining how much the lessee pays in lease payments. As a general rule, the longer the useful life or lease period of an asset, the lower its residual value.

Why Would You Own ETFs?

The best effort ETFs give out to its shareholders is the diversification of an index fund as well as the ability to sell short, buy on margin, and purchase as little as one share. Maybe the best thing about ETFs are their expense ratio is probably and more likely to be lower than the average of the mutual fund, but you would still pay the same amount of commission to your broker when you pay on any regular order.

See also: An Understanding on the Basics of Index Funds

 

 

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