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Since its inception in the US in 1993 ETFs have been index funds, but in 2008 Securities Exchange Commission started giving approval to the creation of actively managed ETFs. Recently there has been a sharp rise in number of traders who are looking at ETFs as an investment basket in their portfolio. Billions of dollars are being invested into these funds, and financial institutions are thinking of new strategies and bringing novel funds to the market.

However investors should be aware about one aspect which can have an impact on their returns from ETFs. Investors should keep in mind that these instruments which are being traded on the exchange are subject to brokerage fee. Usually in the United States the brokerage fees hovers between $10 to $20, and at times it can also be as low as $3 with some discount brokers. As everyone is in the business to earn profits same is reflected in the brokers policies, so if someone wants to invest $300 per month may have a considerable proportion of investment ruined immediately, as opposed to someone making a $500,000 investment, the cost of brokerage fee may be minor.

Investor should also remember the expense ratio which is the administrative burden that the funds charges for investing trader’s money. As a trader if you are thinking on either investing in ETFs or mutual funds it’s important to remember that most mutual funds have higher expense ratio than comparable ETF expense ratio. For example: Mutual funds may charge somewhere between 1% to 3%, or more; while with ETF expense ratio mostly falls between 0.1% to 1% range. Merely looking at the percentage it may seem like a small difference but for an actual trader this difference in percentage can be an important driver while adding an investment to his/her portfolio.

If you are looking at all the expenses involved with ETF then taxation is also one expense to consider before making that investment decision. So again if we are looking at ETF in comparison to mutual funds since they are the most similar kind of investment instruments, from taxation perspective ETFs are more attractive than mutual funds.

The most important benefit for ETFs that it can be stock like traded on the exchange combined with the low ETF expense ratio makes it more lucrative for traders when they are compared with mutual funds, stocks, derivatives or bonds.

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