WHAT IS ETF? HOW IS IT DIFFERENT FROM A REGULAR FUND?

WHAT IS AN ETF ?

WHAT IS ETF? HOW IS IT DIFFERENT FROM A REGULAR FUND?
WHAT IS ETF? HOW IS IT DIFFERENT FROM A REGULAR FUND? 


table of Contents

* Introduction
* What is ETF ?
* Features of ETF ?
* Types of ETF .
 *Tax Benefits
  • INTRODUCTION ( INTRODUCTION)
Investors have to face many investment-related options: stocks or bonds, domestic or international, different sectors and industries, dividend or growth.

Deciding whether to buy a mutual fund or exchange-traded fund (ETF) may seem like a trivial idea next to others, but there are significant differences between the two types of funds that can affect you. How much money do you make and how do you make it.

Both mutual funds and ETF stocks and / or bonds carry a portfolio, and sometimes some are more foreign, like precious metals like Gold ETF. 

They should follow the same rules which they can do themselves, how much attention can be concentrated in one or a few holdings, how much money they can borrow in relation to the portfolio size, and much more

WHAT IS ETF ?

As the name suggests, ETFs do business on exchanges, as do common stock, and the other side of the business is some other investors like you, not the fund manager. 

You can buy and sell at any time, depending on market conditions at any time during trading session, not only at the end of the day, and no minimum holding period.

This is particularly relevant in the case of international property tracking ETFs, where the price of the asset has not yet been updated to reflect the new information, but it has the valuation of the US market.

As a result, ETFs can reflect the reality of the new market faster than the mutual funds.

FEATURES OF ETF

  • ETFs can invest in stocks bonds or commodities :                                                                                                                                                                                                                            ETFs do not track the stock index only. They can also track Bond Index (such as Liquid ETF) or Commodities (like Gold ETF).                                                                                                        
  • ETF is actively traded on an exchange :                                                                                                                                                                                                                                                 An ETF is actively traded on a stock exchange. A mutual fund can be listed on the exchange, but usually it is not actively traded.                                                                                                                                                                                                                                                      Hence the ETF price may vary from ETF (NAV) to the underlying value. It can trade on the premium or discount in the ETF's NAV.                                                                                                                                                                                                                                                   In the case of a mutual fund, you buy and sell units from the fund house in NAV. To invest in ETFs, you also need a d-emat and trading account. In principle, you can buy and sell ETFs directly with the fund house.                                                                                                                                                                                                                                                             Although the size of such transactions has been fixed at higher prices and most general investors are out of reach.                                                                                                                      
  • Note that not all ETFs have the same liquidity on the stock exchange. With the significant asset under management in general large ETF, there will be more liquidity. You usually prefer this kind of ETF over your small counterparts.                                                                                           
  • ETF is managed in an effortless manner :                                                                                                                                                                                                                                            An ETF is essentially a passive instrument. Some ETFs can track the Customise Index such as Nifty Low Volume Index or Sensex Next 50 Index (which is called Smart Beta Strategy).                                                                                                                                                            Although they are still idle tools. Most mutual funds are actively managed. However, there is a section of mutual funds called index funds which are inoperatively managed and have lower expense ratio.                                                                                                                                                                                                                                                                                            Such mutual funds sometimes hold units of ETF instead of the underlying shares or commodities.                                                                                                                                                                                                                                                                                              ETFs have low expense ratio: ETFs are passively managed and therefore, there are less expenses than mutual funds. This can result in higher returns in ETFs over the long term.               
  • TYPES OF ETFS
  • Equity fund:                                                                                                                                   ETF tracks the equity index. While some indexes replicate an index completely, other reps use sampling, which is different in that it uses futures, options and contract swaps.                               
  • Commodity Fund:                                                                                                                   Investment in Commodity ETFs can happen when you have understood that you are interested in commodities. Traditionally, the price of commodities with equity is minor.                                                                                                                                                  
  • Fixed Income Fund:                                                                                                                  Experts highly recommend that you invest in fixed income securities such as Bond and Bond ETF, a part of your portfolio. This is because bonds reduce the volatility of a portfolio, while also providing an additional flow of income.                                                                                          
  • Real Estate Fund:                                                                                                                  Investors who want a little adventure should go for real estate investment trust ETF.                                                                                                                                             
  •  One of the major attractions in these funds is that they have to pay 90% of their taxable income to shareholders.

TAX ( TAX) BENEFITS

An advantage over the mutual fund in the ETF is in relation to tax. ETF has shown high tax efficiency because they are structured and how they are classified under the IRS.

 In addition, the concept of Capital gains tax on ETF can only happen if the entire investment is on sale, which goes with the Mutual Fund when the fund's property is sold.


It is almost impossible to avoid taxes these days and there are very few resources in India where you do not have to pay taxes.

 Perhaps there is only where you can not pay tax on interest (Tax), generally ULIP, PPF and ELSS.

thanks for the time .

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