What Are Exchange Traded Funds?

Exchange Traded Funds represent the shares ofrequirement.
ownership in either fund, unit investment trusts,Many Exchange Funds have the capability for
or depository receipts that hold the portfolios ofoptions to be written against them whereas
common stocks that closely track theMutual funds do not offer such features.
performance and the dividend yields of specificAs a working example, an investor in an
indexes, either broad market, sector oropen-ended fund can only purchase or sell at the
international.end of the day at the mutual fund's closing price.
Exchange Funds give the investors theThis makes stop-loss orders much less useful for
opportunity to buy or sell an entire selection ofopen-ended funds.
stocks in a single security, as easily as buying orThat is, if your broker even allows them. An
selling a share of stock. Exchange Funds offer aExchange Traded Funds is continually priced
wide range of investment opportunities.throughout the day and therefore is not subject
Exchange Traded Funds also called, as the ETFsto this disadvantage, allowing the user to react to
can also be understood as open-ended collectiveundesirable or beneficial market condition on an
investment schemes, traded as shares on mostintraday basis.
of the global stock exchanges. They try toAnother advantage is that Exchange Funds like
replicate a stock market index for instance thethe closed-ended funds are immune from some
S&P 500 or Hang Seng Index, a market sectormarket timing problems that have plagued
for instance energy or technology, or aopen-ended mutual funds. In these timing attacks,
commodity as an example gold or petroleum.large investors trade in and out of an open-ended
Understanding the Exchange Traded Fundsfund swiftly, exploiting minor differences in price in
While it may seem to be similar to an indexorder to profit at the expense of the long-term
mutual fund, Exchange Funds differ from mutualunit holders.
funds in many significant ways. Unlike IndexThus, with an Exchange Funds or say a
mutual funds, Exchange Funds are priced and canclosed-ended fund such an operation is not
be bought and sold all the way through the tradingpossible--the underlying assets of the fund are not
day. Furthermore, Exchange Funds can be soldaffected by its trading on the magnificent market.
short and bought on margin too.Exchange Traded Funds like any other kind of
Well! Now, single securities, known as ExchangeInvestment Company will have a prospectus. All
Traded Funds (ETF), can track the performanceinvestors that purchase Creation Units get a
of an increasing number of diverse index fundsprospectus.
such as the NSE Nifty. Most Exchange FundsSome Exchange Funds also deliver a prospectus
represent a portfolio of stocks that are very wellto secondary market purchasers and the ones
designed to track one specific catalog.that do not deliver a prospectus are required to
Exchange Funds can be bought and sold exactlygive investors a document known as a Product
like a stock of an individual company during theDescription, which summarizes all the key
entire trading day. In addition, they can be boughtinformation about the ETF and explains how to
on margin, sold short or bought at specific limitget a prospectus.
prices. Exchange Funds can help investors build aAll Exchange Traded Funds will deliver a
diversified portfolio that is easy to track.prospectus when asked for, as they do not use
Exchange Funds trade like shares while providingprofiles. Exchange Funds are legally structured as
the diversification of managed funds. Theiropen-end companies and must also have
presentation closely tracks the investment returnsstatements of additional information.
of the shares making up for the index.Open-end Exchange Traded Funds must be able
Well! Exchange Traded Funds can be the cheapto provide shareholders with annual and
and the most fairly valued ones. Perhaps thesemi-annual reports before buying shares; you
most important, although subtle, benefit of an ETFcould carefully read all of Exchange Funds available
is the stock-like features that are offered.information, including its prospectus.
Since Exchange Funds trade on the exceptionalThe website of the American Stock Exchange
market, investors can carry out the same typesprovides more information about numerous styles
of trades that they can with a stock. Forof Exchange Traded Funds and how they work.
example, investors can sell short, use a limitYou can easily Uncover detailed information about
order, use a stop-loss order, buy on margin, andExchange Funds resting on the website of The
invest as much or as little money as they wish,NASDAQ Stock market too.
as there is no rule of minimum investment