What is an ETF, how is it different from a mutual fund?

Question

Can someone explain to me in details what an ETF is? What is the pros and cons of an ETF? How is it different from a mutual fund? What is the average yield on an ETF?

Answer 1

Exchange Traded Funds are portfolios of stocks, bonds or in some cases other investments that trade on a stock exchange much the same as a regular stock does.The first ETF to hit the market was SPDRs in 1993 which track S&P 500 index of large companies.Today ETFs track any industry or sector of the market and now we have the choice to select from around 150 different types of ETFs.

Pros: It is more flexible as they can be bought/sold at whatever price they happen to be traded during the day.It's operating cost is low and has more tax efficiency.

Cons: Brokerage is a drawback as it can be bought/sold through brokers and too much flexibility can tempt to jump form one to another.

How it differs from MFs:

The mode of operation is different ie, MF units are bought/sold at NAV from/to the fund itself where as ETFs are bought by the investor himself.MFs have limited exit optins compared to ETFs and also differ in cost effectivesness and tax efficiencies.However MF gives relief to the investor from building his own portfolio to a certain extent.

Answer 2

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Answer 3

ETFs and mutual funds have different expense ratios, even when run by the same management company with the same goals.  You could start with a no-load fund and end up paying more in expenses than if you paid a one time commission in and a one time to get out at a discount broker but got the ETF with lower ongoing expenses.  this makes it sound like the no-load fund would be better for someone with an active in-and-out strategy, but many fund companies restrict active trading in their funds.

An ETF has a quoted price while a mutual fund does not.  When you want to buy a mutual fund, you enter an order to buy which is held and filled at the end of the day with the price for the day.  You have to call back and find out how much you paid.  If the market makes a big jump near the end of the day and the price goes way over what you think it's worth, too bad, your order got filled anyway.  Same thing happens when you sell.  An EFT trades like a stock; you can get your order filled right now.  

An ETF trades like a stock, so you can put in stop and limit orders.  Mutual funds won't let you do this.

If you have a margin account, you can short or borrow against the ETF.

With mutual funds, if you hold the shares directly with the fund company, you have a delay in getting the money back if you want to change investments to anything other than another fund from the same company.  If you hold the shares in your brokerage account, you get the flexibility, but they are frequently shares of a class with a higher expense ratio so the fund can pay the brokerage house a fee.  (You didn't really think that the brokerage wasn't making any money on the no-fee, no-commission, no-load funds, did you?)  With ETFs, you can move your money from investment to investment easily within you brokerage account.

Answer 4

ETF stands for exchange traded fund. like a mutual fund they are made up of many different stocks or bonds or a combination of both.

the biggest difference between both is that an ETF trades daily on the market in real time....so you can buy it and sell it just like a stock at any point during the trading day with no trading restrictions

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mutual funds may only be bought and sold at the close of the trading day and do not trade in real time. Also mutual funds only allow you to go in and out of them a few times every 6 months (or 3 months in some cases).

As for the yield there are so many different etfs with many different yields....there is nothing like a standard yield