An
exchange traded fund (ETF) provides an opportunity to pool your money with other investors in a similar way to a
mutual fund. ETFs will track a particular index, sector, commodity, or other assets. Unlike
mutual funds, however, ETFs can be bought or sold on a stock exchange in the same way other stocks and shares can. You'll incur charges just like a
mutual fund, but the fund manager's charges (initial charge, annual ongoing charge and transaction charges) tend to much less.
You make money by investing in an ETF by selling some or all of your share of the ETF if it goes up in value, but on the opposite side, you will lose money if you sell your share of the ETF if it decreases in value. With an income fund, you gain from any dividend payments received from shares in the fund, or from interest on bonds. For an accumulation fund, dividends and interest payments are automatically reinvested by the fund manager - check how the fund operates before investing.
Further points on ETFs
are:
- The ETF share price fluctuates throughout the day as shares in the ETF are bought and sold (unlike mutual funds which only trade once a day).
- ETFs can contain a wide range and mixture of investment types - stocks and shares, commodities and bonds, for example.
- Buying shares in an ETF gives you exposure to a number of stocks and shares - this provides a lower expense ratio and less platform / broker fees than buying the stocks and shares separately.
For a more comprehensive explanation of ETFs, search online or follow the link below:
