Exchange-Traded Funds are an Interesting Alternative to Mutual Funds


Visitors: 135

Exchange-traded funds (or EFT for short) have recently become a more and more interesting alternative to classic mutual funds. As of today, there are over 175 EFTs accumulating over 200 billion dollars - and these numbers are growing. While it is improbable for EFT to completely supersede classic mutual funds (at least in the near future), they are an interesting alternative and probably a must-have in every beginners portfolio.

What is EFT?

Basically, an exchange-traded fund is a fund made of a portfolio of stocks from a single market. The portfolio is composed based on an index, industry sector or (more rarely) a country the companies are tied to. There are many stocks in each EFT portfolio, so the risk of the losses is roughly the same as in case of mutual funds. However, the expenses are tied thus keeping EFT funds from going much lower, and the fees charged by EFTs are minimal, giving investors additional income. What's more, EFTs trade like stock, making life easier both for investors and fund managers.


1. Low fees The most obvious strong point of EFTs is their low fees. While lowering them to such levels as 0.2% a year may look like magic, it is completely normal - due to the fact that all the stocks are tied to some single slice of the market, the funds can reduce the amount of money spent on market analyses. 2. Lower taxes Unlike mutual funds, exchange-traded funds distribute nothing but a dividend from time to time, so there are few reasons to get taxed. 3. They're transparent You can check real-time what your EFT is actually doing with your money, while mutual funds report their holdings only twice a year. 4. Extra trading opportunities EFTs are sold just like normal stocks, thus creating many different trading options. Stop-loss and limit orders are but one of many opportunities available only to stock trading.

Switching to EFT

Switching to exchange-traded funds is relatively easy on tax-free accounts, such as IRA (Individual Retirement Account), where you simply cease to invest in mutual funds or stocks and start buying EFTs. However, when we're speaking about taxable accounts, you will have to make a switch only a little at a time to ease the taxation burden on your revenue.

Remember that while Exchange-traded funds are an excellent investing opportunity, it is not without risk, so consult with your Financial Professional before investing, especially if you have a taxed account.

For more information on learning stock investing , visit


Article Source:

Rate this Article:  0.0/5(0 Ratings)

Related Articles:

Exchange Traded Funds: Why You Should Never Buy a Mutual Fund Again

by: John M. McClure (June 29, 2006) 

Gold Traded Mutual Funds

by: Dilip V Mohan (July 27, 2008) 
(Investing/Mutual Funds)

Exchange Traded Funds

by: Al Thomas (February 28, 2005) 

What Are Exchange Traded Funds

by: Amit Malhotra (January 04, 2008) 
(Finance/Stocks Mutual Funds)

Exchange Traded Funds

by: Viktor Ka (December 15, 2009) 

Exchange Traded Funds Primer

by: Mark Mahorney (May 27, 2005) 
(Finance/Stocks Mutual Funds)

Three Benefits of Using Exchange Traded Funds

by: Allen Landis (January 08, 2008) 

ETFs (Exchange Traded Funds)

by: Dilip V Mohan (July 11, 2008) 
(Investing/Mutual Funds)

Benefits of Exchange Traded Funds

by: Micheal James (March 12, 2008) 

ETF Education - Types of Exchange Traded Funds

by: Ken Long (September 20, 2008) 
(Investing/Mutual Funds)