What are Exchange Traded Funds (ETFs) ?

What are ETFs?

Benefits of Investing in ETFs

1. Diversification: With a single ETF, you gain exposure to a broad market or sector, reducing the risk of individual stock performance impacting your returns.
2. Liquidity: ETFs trade on stock exchanges, enabling you to buy or sell units at market prices throughout the trading day.
3. Transparency: ETFs disclose their holdings daily, offering investors clear insights into the underlying assets.
4. Cost-Effectiveness: ETFs generally have lower expense ratios compared to actively managed mutual funds, making them an affordable investment option.
5. Tax Efficiency: ETFs typically incur fewer capital gains distributions, providing tax benefits compared to mutual funds.

Risks of ETFs

1. Market Risks: ETF prices are subject to market volatility, just like the underlying assets. 
2. Tracking Errors: An ETF’s performance may not perfectly match its benchmark index due to fees and transaction costs. 
3. Liquidity Risks: Some ETFs may have lower trading volumes, leading to wider bid-ask spreads. 
4. Settlement Delays: ETF transactions typically take two days to settle, which might delay reinvestment opportunities.

Are ETFs Right for You?

• New investors looking for a cost-effective way to diversify their portfolios.
• Experienced investors seeking targeted exposure to specific sectors or assets.
• Traders who want the flexibility of intraday buying and selling.