( ETFs ) Exchange trade fund are just like mutual funds; that is … they are a collection of investments, but they are traded on an exchange, like the NYSE, instead of being bought directly from the issuing company. They also differ in their redemption structure and tax efficiency from traditional mutual funds.

Ways to benefit from ( ETFs ) Exchange trade funds over mutual funds:

Tax Efficiency: Mutual funds have to sell its underlying securities, upon redemption, and the capital gains are distributed to the owners of the funds. Because ETFs trade on an exchange and investors are selling to other investors, no underlying securities are sold, and no capital gains are distributed. If the makeup of the ETF changes it will, occasionally have to distribute gains, but it should be less frequent than with traditional mutual funds.

Lower Fees: Exchange trade funds are no-load funds, and you will not be hit with a redemption fee when it is time to liquidate your position. Also, ETFs always have lower annual fees than the traditional Mutual funds, making them an excellent choice. You should note that, In rare cases where a very small amount is being traded, broker’s fees may be a higher percentage of the investment than a mutual fund’s expenses would be, but in most of these cases the invested amount would not meet the minimum investment required by most mutual funds.

There is no minimum investment: When starting investing, diversification can be cost prohibitive if you are using traditional mutual funds, which frequently have a minimum investment of $2500 or more. Because ETFs have no minimum investment, besides the market price of one share, they are a good means for diversified investing.

Liquidity: The exchange-traded structure of ( ETFs ) generally allow for liquidation of a position faster than a mutual fund, which must be liquidated at end of day. Further, the ability to set a limit order allows flexible trading that no investor could get from a mutual fund. Not all ETFs have the same liquidity. .. And it is important to review trading volumes and the ETF prospectus to determine whether you are comfortable with the frequency of trades.

Intraday pricing: Because ETFs are traded on active stock exchanges, purchases & sales happen at market prices, rather than end of day Net Asset Value, which mutual funds use. As a result, one may purchase ETFs at a premium or a discount to the value of the underlying assets, and arbitrage is frequent.