ETFs continue to surge in popularity as their numbers and types grow every day. Understanding what they offer and how they’re different is key to choosing the right ETF for you.
Exchange -Traded Fund (ETF) is a type of investment that holds a bundle of assets that you can buy and sell during market hours. This potentially lowers your risk, while helping to diversify your portfolio.
ETFs trade on exchanges (e.g., the Nigerian Exchange), and their share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds which are not traded on an exchange and which only trade once a day after the market closes.
As there are multiple assets within an ETF, they can be a popular choice for diversification. ETFs can therefore contain many types and mixtures of investments, including stocks, commodities, or bonds. Just like a mutual fund, ETFs can be a collection of tens, hundreds, or even thousands of stocks or bonds in a single fund ranging from various industries, or they could be isolated to one sector. Investing in ETFs, allows you to purchase a portfolio of different entities at one time, and it is unlikely that all of them will lose their value.
Because ETFs are traded on the stock exchange, the fund’s value is determined by market forces. If the fund is in high demand, it may be priced higher than its net asset value, which is the underlying value of the securities it holds.
ETFs combine the trading versatility of individual securities with the diversified qualities of mutual funds to meet a variety of investment needs. They typically have lower operating expense ratios (OERs) than actively managed mutual funds.
Click here to learn more about how to invest in ETFs in Nigeria.
You might also be interested in: The Differences Between Mutual Fund vs. ETF
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