Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs)

Subject – Economy

Context – Within passive investing, Exchange Traded Funds or ETFs are gaining so smartly so that it’s perfectly possible to build a good, diversified portfolio with just ETFs.

Concept –

• An Exchange-Traded Fund (ETF) is a basket of securities that trade on an exchange, just like a stock.
• ETF reflects the composition of an Index, like BSE Sensex. Its trading value is based on the Net Asset Value (NAV) of the underlying stocks (such as shares) that it represents.
• ETF share prices fluctuate all day as it is bought and sold. This is different from mutual funds that only trade once a day after the market closes.
• An ETF can own hundreds or thousands of stocks across various industries, or it could be isolated to one particular industry or sector.
• Bond ETFs are a type of ETFs which may include government bonds, corporate bonds, and state and local bonds—called municipal bonds.
• A bond is an instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).
• Besides being cost efficient, ETFs offer a diversified investment portfolio to investors.