So basically etf is....?

Question

exactly like a mutual fund. will get a CASH divident if it goes up... but you can sell and trade like a "real - time" stock instead of waiting a month or a year ( kinda like a cd, you cant touch it, right)?

Answer 1

Like a mutual fund except that you can buy during market hours, like stock instead of waiting for the end-of-day settlement at the net asset value, which you don't know when you put in your order.

Also, ETFs can be sold short and borrowed against in a margin account.  things you can't do with mutual funds.  ETFs can be bought and sold with limit orders, again,  things you can't do with mutual funds.

Answer 2

Not exactly like a mutual fund, although I understand where you see the similarities, because there are several.

They differ in how you can purchase them. You can buy an ETF on any market where its traded, exactly like stocks. Mutual funds, however, can generally only be bought via the fund-provider or a broker that represents that provider. However, while it generally costs you a fee to purchase stocks or ETFs, many fund-providers will allow you to buy and sell shares in a mutual fund without a fee if you have a sufficient equity in your account.

They differ in tax treatment. ETFs are treated like shares of stock - if it increases in price, you pay taxes on the gain only when you sell the share (realize the gain). Mutual funds, on the other hand, realize the gain at year-end, and so if you own shares in the fund, you may have to pay taxes even without selling your shares.

Because ETFs and Mutual funds generally are comprised of securities that pay dividends at several dates, you will not receive dividend payments when the underlying shares pay out, but rather at the fiscal quarter or year-end of the fund. It depends on how your fund structures it. Also, many funds reinvest those dividends into additional shares for the shareholders - very few actually pay out the cash. If you want cash dividends (which are treated with lower taxes), you are better to buy blocks of individual stocks.

They are alike in that when you buy into a mutual fund or into an ETF, you're buying a share of an investment vehicle that represents many different securities. The advantage to both is that if you wanted to buy, say, 40 different securities, you can buy representative portions of each of them without going through 40 different transactions, thus saving on transaction costs (which can be considerable). You immediately gain the advantage of diversification of risk.

Until recently, ETFs also were limited to tracking an index, while mutual funds could represent a slew of investment philosophies (regional, industry, "sin") as well as track an index (hence, "index funds"). The SEC has allowed the creation of actively-managed ETFs in just the last year.

Otherwise, an ETF very much resembles a closed-end, passively-managed index mutual fund.

Closed-end means that there are only so many shares of a given fund out there, so that when you buy shares of that mutual fund, you're buying them from someone else. The underlying base of assets (ie, the 40 securities mentioned above) does not change in size or type.

When you buy into an open-ended mutual fund, on the other hand, new shares are created for you (through buying more of those 40 securities), and so the underlying asset base changes.

Passively-managed mutual funds are simply set up to model some portfolio. All index mutual funds are passively-managed. If your mutual fund tracks the S&P 500, then it purports to own a base of securities that reflects accurately the movement of the S&P 500 index (if not all 500 securities therein).

Actively-managed mutual funds, on the other hand, aggressively trade securities in an attempt to reach the stated objectives of the fund. Value funds buy up value stock - shares of stock that look underpriced relative to fundamentals (balance sheet, business performance, etc). Income funds hold dividend-yielding securities. Capital appreciation funds purchase securities that look to grow in value over the long-run, etc.

Actively-managed funds tend to be much more costly than passively-managed funds because the management fees are higher.

I hope I've helped illustrate how an ETF is very close to a closed-end, passively-traded, index-tracking mutual fund.

Answer 3

Exchange traded funds or the ETFs are the index tracking funds. They are listed on the stock exchange and can be traded like single equities. An ETF tracks the value of a stock index or the market as a whole. They are liquid funds and can be easily bought or sold exactly like a stock of an individual company throughout the trading day. ETFS provide a wide range of investment options. They can help investors build a diversified portfolio that's easy to track.

Most ETFs represent a portfolio of stocks designed to track the performance of the market indexes. Since the indexes constantly drop poor performers and pick up the good ones, a trader is always investing in the best performers that the market has to offer. Therefore, your index tracking ETF delivers returns in accordance with the general market trends.

The advantages of ETFs over Mutual Funds

Investments in ETFs are considered better investment options than mutual funds. Even a good mutual fund may stop performing as well as the market over a period of time. There are several reasons for this:

1. There are hundreds of mutual funds in the financial market. An ordinary investor may find it difficult to analyze and compare the functioning of these funds. Moreover, every fund may not have competent fund manager.

2. Mutual funds generally have high fees and overhead charges. They cumulatively tell adversely upon the real performance of the fund. The returns fall dramatically over the time.

3. The portfolio manager of a mutual fund showing good performance may leave it for better chances elsewhere. The successor may not be as good as his predecessor.

4. Mutual funds are actively managed. A fund that delivers 30% in the first year may not perform well in the next year. The company may well tell you boldly how they delivered 30% in the previous year, but in reality will not reveal that their actual return was much less if you factor into the losses. Even the star performers in mutual funds may fall within a matter of two years. Remember the super performance of the dot.com stocks and the funds that heavily invested in them.

5. Mutual funds have the history of performing poorly over the long term except for brief periods where only 50% of them could beat the market.

In contrast to the mutual funds, the index tracking exchange traded funds perform like the market. It shows an overall gradual but positive uptrend. ETFs do not employ the high profile expensive managers like the portfolio managers in the mutual funds. They do not incur maintenance costs, fees for paper work or function from posh offices. An index tracking ETF is, in fact, only an instrument that tracks a market index like the NASDAQ 100 or the S&P 500. Of course, you cannot expect instant dream profits, but you do not have to suffer huge losses as well. The reason for this is that an ETF market rises historically. Moreover, you can buy an index trading ETF at the fraction of the cost of a mutual fund and yet expect a much higher return.

The pro and con arguments about ETFs versus Mutual funds boil down to whether you want a low probability of an amazing return, or a high probability of a good return. This can be explained by an example:

Suppose you invest $ 10,000 with a popular market-tracking index ETF with a historical return of 10%. Your total return over a decade should be $25,937. Let us say you invest the same amount in a mutual fund for the same period, Chances are that only one or two out of ten, or around 15% would beat the market index fund. This means that out of ten possible investment returns, only one or two would surpass the return offered by the exchange traded funds. The odds evidently are 5 to 1. There is also a possibility that your investment in a mutual fund may end up in losses. Even if you earn profits, they may be more than nullified by their heavy fees and overhead charges.

For tools on ETFs, visit this page:

http://cxa.marketwatch.com/SogoTrade/Etf...

Answer 4

An "exchange traded fund", is very much like a mutual fund, as it is diversified and holds a number of different shares.   A major differnece is that you can buy and sell it just like a stock, real time.  Note that since this is done through a brokerage account you will pay a commission, so frequent trading will add to your investment expenses.  

Mutual funds are only priced once a day, so you can only trade them at that price and you can not be certain of the price you will get.  The mutual fund company does not charge for buying or selling, but they may have other rules restricting or penalizing frequent trades or short holding periods.