What is Exchange Traded Funds

Do you know about Exchange Traded Fund (ETF)? Exchange Traded Fund, is an investment portfolio consisting of many investments that trade like stocks.It holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day.ETFs experience price changes throughout the day as they are bought and sold.By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you’d pay on any regular order. One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500 index and trades under the symbol SPY.

Why do investors choose ETFs?

Diversified Exposure:
Unlike individual shares, ETF holds a basket of securities with the objective of mimicking performance of an index. This basket can be made-up of shares, bonds or commodities, depending on the index that the ETF is based on.

Instead of having to search and hold a few stocks or bonds that would otherwise be cost excessive and complex, investors can use ETFs for exposure to a diversified basket of stocks or bonds.

Cost Effectiveness:
Lower annual management fees for ETFs as compared to unit trusts makes ETFs more economical to buy and maintain in the long run.

ETFs are listed on the Main Market . Just like trading stocks, buying and selling ETF units are done on its current market price with one transaction. Trades can be done online or through stock brokers.

Investors know exactly which stocks or underlying assets is held in the ETF by visiting the ETF’s website, provided by its manager. Here, the list of ETF constituents is updated on a daily basis.

Reference : BursaMalaysia.com

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