Investing in Exchange-Traded Funds

- 17 January 2022 01:53 WIB
ETFs are somewhat similar to mutual funds. (Unsplash/ethmessages)
ETFs are somewhat similar to mutual funds. (Unsplash/ethmessages)

JAKARTADAILY.ID - Just like regular stocks, exchange-traded funds (ETFs) monitor an index, sector, commodity, or other assets and may be traded on stock exchanges. An ETF can be set up to monitor everything from a single commodity's price to a big and diverse group of securities. ETFs can even be built to follow certain investment options.

ETFs invest in a variety of assets, including stocks, commodities, bonds, or a combination of them. An exchange-traded fund is marketable security, which means it has a value that can be purchased and sold easily.

Also Read: Tips for Successful Investments from Lo Kheng Hong

Since it is exchanged on a market like stocks, an ETF is named an exchange-traded fund. As shares are purchased and sold on the market, the price of an ETF's stocks will fluctuate during the trading day. Mutual funds, on the other hand, are not traded on a stock exchange and only trade once a day after the markets closed.

Furthermore, as contrasted to mutual funds, ETFs are more cost-effective and liquid.

Types of ETFs
ETFs are investments that hold a variety of underlying assets, as opposed to stocks that hold a single asset. Diversification with ETFs is popular since they contain a variety of assets.

There are many types of exchange-traded funds, and each can hold hundreds or thousands of stocks from different industries, or it can focus on just one. Some funds are only focused on the United States, while others have a global view. Banking-focused ETFs, for example, would hold stocks from a variety of banks across the sector.

Also Read: Indonesian NFT, Economic Potential, and Legal Framework

There is a wide selection of ETFs available to investors that offer income, speculation on price gains, risk management, or partial offsetting of portfolio risk. Bond EFTs, Stock EFTs, Industry EFTs, Commodity EFTs, Currency EFTs, and Inverse EFTs are among the list of some of the most popular ETFs on the market right now.

Pros and cons
If you're going to use EFT, please note that there are also pros and cons to this. The perks include access to a diverse range of equities from a variety of industries, the broker commissions, and expense ratios are low, it has diversification that helps to manage risk, and there are ETFs that specialize in specific industries.

However, the downsides are ETFs that are managed actively have higher fees and the lack of liquidity makes transactions difficult. With single-industry-focus, diversification is also quite limited with ETFs.

Editor: Mukhtar Wijaya

Source: Investopedia,


Related Article

Latest News

Understanding DeFi: An Overview

25 January 2022 12:50 WIB

Exchange-Traded Funds In Indonesia

17 January 2022 07:00 WIB

Investing in Exchange-Traded Funds

17 January 2022 01:53 WIB