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ETFs on a Budget

The popularity of ETFs on budget is growing constantly amongst the financial circles of both money managers and investors because of the lower costs and much broader versatility. Short-term investors and day traders can gain much by investing in ETFs. The investors can even the amount of money spent on tax. ETFs are a smart option for smart investors who want to trade in a quicker and more beneficial way. There are many types of ETFs available including the Index ETFs, Bond ETFs, ETCs or commodity ETFs, Actively managed ETFs and Inverse ETFs.

Let us now analyze in detail the advantages of ETFs on a Budget

  1. Cost Effective: The EFT’s are much less costlier than the traditional funds. Mostly all mutual funds sales charge which they process either while purchasing (A shares) or while declining schedule (B shares). Even the C shares investors need to pay a small amount at the time of purchase and another small amount a year later after redeeming the shares. The traditional mutual funds even charge 12b-1 fees, an ongoing management fees, which equals to a 1% percent of the investors money every year.  Though the no load funds do not charge sales fees they also charge management fees.

ETFs on the other hand neither charge any sales fees nor management fees, just the brokerage that the investors need to pay for buying and selling these. Thus, ETFs are an ideal solution for people who have limited resources but want to invest.

  1. Better Trading Options: Small-time investors who have a limited budget should consider investing in ETS’s because of their overall low cost. The ETFs can be bought at a limit price and include stop loss trailing orders under them to provide protection. Another trading advantage that ETFs have over other traditional funds is that they can be bought and sold any time in the market and any number of times. Unlike traditional funds they are not at the mercy of market pricing to be bought only at a particular time. Even the no-load funds can be bought or sold only one a day.

Hence, ETF’s are ideal for short-term traders and investors with limited resources, who want to trade in and out of market fast and cheap.

  1. Advantages over Tax: The ETFs offer a lower rate of distribution over capital gains. The traditional funds have substantial capital gain distribution rate but almost all ETFs have a set basket of focuses securities in a particular sector or subsector. The enables the investors to save money on taxes by eliminating the need to pay embedded capital gains every year.

In spite of many advantages of the mutual funds they have many drawbacks. But, many a drawbacks such as illiquidity, more costly and comparatively in efficient in case of taxation has forced investors to doubt the majority of mutual funds. Exchange Trade Funds are a newer breed of funds that offer investors the same as advantage as provided by the mutual funds but after eliminating the drawbacks.

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