What is an ETF

An Exchange Trade of Fund or ETF is an investment vehicle that looks like a lot of mutual fun but with some important distinctions. ETF’s were created to represent a basket of securities that track as stock, bond, real-estate, or commodity index. While ETF’s and funds both offer broad diversification, ETF’s charge lower annual management fees than actively manage an index mutual funds.

ETF’s carry more favorable capital gains-packed profile than manage mutual funds. The reason is that there’s no trading in and out of securities. An ETF remains pegged to its corresponding index. Tax efficiency can help active traders for those in higher tax brackets. ETF’s trade like stocks which means you can buy and sell them in today versus a mutual fund where purchases and sales are based on the closing price on the day of the transaction. This feature is attractive that comes at a price. You pay a broke ridge fee when you buy yourself ETF’s - a drawback for those who make small and frequent transactions.

If you invest a small amount on a monthly basis, no load index funds may be a more affordable option than ETF’s for you.


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