October 31
Haven’t You Discovered ETF Funds Yet?
Fellow traders out there if you are little bit aware about Exchange Traded Funds then you should have known by now the prime factor that makes ETFs stand out of all which is its stock like trading feature. These Funds can be traded on major stock exchanges any time during the trading hours just like normal stocks. ETF funds were basically created to trace the movement of respective index with which it is associated, and it lets the traders to use a cost effective and cost efficient financial instrument in their portfolio.
Institutional investors, Banks and Hedge Fund managers have already tried and tested ETF Funds so the popularity and growth seen in the recent years is due to these set of investors. Financial Guru’s and Researchers believe that the growth will continue since ETF funds have started attracting ordinary traders as well. If we look at asset growth then during the year 1995 approximately little over a billion dollars were invested in ETFs, then in year 2000 it grew to $62 billion approximately, in year 2005 it was around $300 billion and last year in 2008 it shoot up to around $540 billion.
Authorized participants act as a liaison between the investors and the ETF sponsors. They are the only party which deals with the sponsors and are also known as the market makers. In absence of market forces with the help of Arbitrage authorized participants try to bring the market price of ETF near to the current net asset value. More over arbitrage is not carried out to facilitate the investors or the ETF sponsors but it is done to earn a prospective profit out of it.
One of the important features of Exchange Traded Funds is the availability of information, institutional investors and banks that offer these funds fully share their holding details (as opposed to mutual funds who is unwilling to share their holding details). Additionally, a comprehensive detail of the holdings of a particular ETF also helps the traders to make a decision on including an ETF into their investment portfolio. Since holding an ETF is like holding stocks of several companies, it provides more diversified portfolio which is less risky and of course by investing in ETFs one is staying away from managing and daily tracking of bunch of stocks.
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