Exchange-Traded-Fund is a type of investment wherein your invested fund can be buy collections of securities like stocks, commodities and/bonds.
The Different Types of ETF
Portfolio managers, agents or brokers who are more involved in buying and selling of shares, stocks or holdings from one fund to another tends to have higher expense rate. This type of Exchange-Trade-Fund (ETF) handling is called ‘Actively-Managed ETFs.’ So it is very important for any investor to get involve on how the fund is manage for the resulting expense rate or cost will weigh if an investment is worth risking.
An indexed-stock ETF provides investors with the diversification of an index fund as well as the ability to sell short, buy on margin, and purchase as little as one share since there are no minimum deposit requirements. However, not all ETFs are equally diversified. Some may contain a heavy concentration in one industry, or a small group of stocks, or assets that are highly correlated to each other.
Dividends and ETFs
Aside from generating gains as stocks rise and fall, investors of ETFs also benefits from companies that pay dividends. A portion of earnings paid or allocated by the companies to investors for holding their stocks is called ‘Dividends.’ ETF shareholders are entitled to a proportion of the profits, such as earned interest or dividends paid, and may get a residual value in case the fund is liquidated.
ETFs and Taxes
Since buying and selling of funds occurs through exchange, ETF is more tax efficient compare to Mutual Fund. An ETF sponsor do not need to redeem shares each time an investor sells or issue new set of shares whenever an investor buys. Redeeming shares can cause a tax liability but by way of listing shares to exchanges taxes cost can be lowered.