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Exchange traded fund

Posted on : 07 Dec 2019

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  • An exchange-traded fund (ETF) is a marketable security, meaning it has an associated price that allows it to be easily bought and sold.
  • ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock; thus adding transparency.
  • ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually.
  • ETFs can contain all types of investments including stocks, commodities, or bonds; some offer domestic holdings only, while others are international.
  • ETFs tend to be very tax efficient and ideal for holding in taxable accounts.
  • An investor who buys an ETF doesn't have to pay an advisory/management fee to the fund manager and taxes are relatively lower in ETFs.
  • Bond ETFs are a type of ETF that exclusively invests in bonds. Bond ETFs invest in various fixed-income securities such as corporate bonds, treasuries, municipal, international, high-yield, etc.
  • Bond ETFs are a cost-effective way for investors to take debt-market exposure.
  • Being listed on the exchanges, bond ETFs also claim to offer liquidity—ability to buy and sell units instantly—for the investor.
  • The liquidity in bond ETFs will depend on how actively market makers buy and sell units on the exchange in bulk.

Article Related Questions

  1. India is set to launch its first Bond ETF (exchange traded fund),which of the following statements are true about ETFs?
    1.ETFs are tax efficient.
    2.The entire portfolio held by ETFs is disclosed on a daily basis to investors.
    3.ETFs offer a higher expense ratio and more broker commissions than buying the stocks individually.
    Choose the correct answer:

  2. 1.Only 1

    2.1 and 2 only

    3.1 and 3 only

    4.1, 2 and 3

    Right Ans : 1 and 2 only

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