Investing in funds has helped many people get decent annual returns over the years. The concepts of exchange traded funds and mutual funds are easy to understand. You must be aware of the difference between exchange traded funds and mutual funds so that you can decide which investment would be more advantageous for you. The comparison between the two, given below, will give you the solution for all your queries regarding fund investments.
Exchange Traded Funds (ETF)
These are nothing but index mutual funds with some special features and characteristics. In ETFs, an index is tracked and their aim is to generate consistent returns for the investors. They are bought and sold constantly and hence naturally experience a lot of fluctuations in their prices. The main reason why ETFs have been recommended is that they help us diversify the investment like an index fund. The advantage that ETFs have over the mutual funds is tax benefits. Taxes incurred on ETFs are lower than that on mutual funds. The cost-effective nature and flexibility provided by ETF investments have made them a popular choice over the years. Index ETFs, bond ETFs and commodity ETFs are the main types of ETFs available for investors.
Mutual Funds
Mutual funds are a safer bet for investors who are wary of the stock markets and direct stock investing. Mutual funds can average out your risk by investing in different sectors of the economy. When you approach the mutual fund service providers, you will be explained the nature of various schemes floated by the company in the market. You will be explained the role of fund managers and how the returns are maximized with accurate decisions. By considering the ratings and reviews, you can take a final call on your investments. Mutual funds are systematic financial products which are of three types - high risk high return ones, medium risk medium return ones and the low risk low return ones. You can choose any product as per your risk taking ability. To start with, retail investors can go with low risk funds and then switch over to the other fund as they become more confident about their investments. The mutual funds will be investing your money in stocks of performing companies. Predicting the company's future performance is slightly tough considering the constantly changing business environment. However, this risk is reduced as the fund managers have the right to exit a particular company stock and invest in out performers to keep up with the promise of returns to investors. Mutual fund companies will charge you for their services and you can expect a much better performance from them in times of market boom, fueled by strong economic growth.
This comparison between ETFs and mutual funds must have helped you know about both these types. You can opt for any investment type by conducting a detailed research and consulting your investment advisers.
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