Exchange-Traded Funds, ETFs here! As an investor so you get confused about the right investment fund to engage in?
Are you seeking the ideal investment fund that offers the right diversification? Search no further! We present to you Exchange Trades Funds
Knowing the right investment security plan could be quite tasking for lots of investors out there. Well, that’s why we are here for you. Having explored what every investor would like to have in ideal investment security, we believe Exchange Trade Funds, ETF is what you need.
On this page, we have carefully explored all about Exchange Trade Funds, what is an EFT, How does an ETF works, How to invest in ETF, types of exchange-traded funds, advantages, and benefits of using Exchange Trade Funds.
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What is an Exchange Trade Fund?
An ETF can be described as investment security in which there is an integration of the attributes of stocks and some characteristic of mutual funds.
It uses the intraday trade on an exchange just like stocks but still tracks the performance benchmark index of the market like mutual funds. This unique combination makes the ETF the ideal trading means or medium.
How Do ETFs works?
ETFs act as a basket of securities intertwined into an investment option that secured trades on exchanges while passively tracking underlying indexes that could represent other securities such as Stocks, bonds commodities, or currencies.
Now as a shareholder of ETFs, you don’t directly own shares of the underlying securities or asset but rather you own just the ETF itself. Exchange Trade Funds are unique as it has their process of creating and redeeming shares and it includes:
- an investment company or ETF manager or sponsor who creates a new ETF
- The sponsor then forms an arrangement with a third party called Authorised Participants, AP
- The AP buys securities in the EFT’s benchmark index, then exchanges them for a block of ETF shares of equal value called creation unit
- The AP sells shares of the ETF to investors or market markers on an exchange
- Investors can then buy and sell shares of ETF.
Types of Exchange Traded Funds
Different types of Exchange Traded Funds, ETF can be categorized into
- Equity ETF
- Fixes income
- Commodity
- Currency
- Real estate
- Specialty EFTs
EFTs VS Mutual Funds
ETFs and Mutual Funds possess some similar features and benefits while also exhibiting some differences
Both ETFs and Mutual Funds act as a single fund with securities of packages, sharing similarities such as diversification, variety of choice, professional management with low cost. However, unlike ETFs that are traded like stocks, mutual funds are traded at the fund’s net asset value.
Another major difference between them is that ETFs have a bid-to-ask spread between the asking price and the bid price while mutual funds do not.
How to Invest in Exchange Traded Funds (ETFs)
You can buy and trade ETFs easily using these steps:
- Choose a brokerage Exchange and select account type
- Open the account
- Add money to the account
- Select the desired ETFs using an ETF screener
- Now, buy shares of the ETF.
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