Exchange Traded Funds (ETFs), introduced in 1993, have gained popularity with investors as alternatives to mutual funds. ETFs consisted of basket of assets designed to track an index, which offered low management fees. Listed below are the reasons why ETFs are popular.
- ETFs are considered low-risk investments since they are low-cost and hold a basket of stocks or other securities. ETFs, which are passively managed, have lower expense ratios (fees) than actively managed funds.
- ETFs represent an ideal type of asset for investors that want diversification. ETFs can track a broader range of stocks, give exposure to a group of market segments or different sectors, or mimic the returns of a country or a group of countries.
- ETFs can be trade like stocks. ETFs can be purchased on margin and sold short. ETFs trade at a price that are updated throughout the day. ETFs allow investors to manage risk by trading futures and options.
- ETFs are more tax efficient than mutual funds. ETFs tend to realize fewer capital gains than actively managed mutual funds.
- ETFs trade throughout the day at a price close to the price of the underlying securities. ETFs trade based on supply and demand.
From the reasons listed above, ETFs have gained popularity every year for investors as alternatives for mutual funds.