The idea and desire for becoming rich have never faded. People are increasingly interested in investment and trade, however many are clueless about the procedure and process. There are people who are well experienced in trading commodities like forex, commodities, CFDs, stocks, and other investment mediums. However, there is always a point of beginning in everything in everyone’s life.
Before all the details on how the system operates, it is necessary for the investor to completely understand the working method and the process. This will provide the investor with a clear picture of what and where they are investing. It is important to understand that investments that claim to make you a millionaire in a night are a scam, without any doubt. However, when we analyse, investments could be of great value and add profits in the long run.
What is the ETF?
An ETF is an Exchange Traded Fund which trades like a common stock on a stock exchange. The units are generally optimised and authenticated by a registered brokerage firm or an individual broker. The units of ETFs are listed as NAV in the stock exchanges. An investor can buy as many units as she wishes without any restriction through the exchange. ETFs track indexes such as CNX, Nifty or BSE Sensex, and many more.
Types of Exchange Traded Funds :
As mentioned above, ETFs are not a specific type of investment but a method of buying and selling exchanges. There are several types of Exchange-traded funds. They include equity funds, fixed-income funds, commodity funds, currency funds, real estate funds, special funds, and many more.
Index ETFs :
These ETFs attempt to replicate the performance of a specific index. As per the research, ” An index fund seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index”.
Bond ETFs :
Bond ETFs flourish during economic recessions because investors pull their money out of the stock market into bonds. Bond ETFs are much safer and holds many advantages such as the reasonable trading commissions and many more.
Currency ETFs :
Currency ETFs are recent when compared to stocks and bonds. They were launched in 2005 and were called as Euro Currency Trust. These are highly volatile and suggested for people who could decipher the nook and corner of ETFs and their working.
The difference between mutual funds and ETFs :
The major difference between mutual funds and exchange trading funds lies in the form of their trading. Traditional old school mutual funds can be bought and sold once daily, after the market’s 4 pm ET close. On the other hand ETFs trade throughout the day like stocks. This provides a major advantage. When an investor could sense a major streak in the prices, he or she could immediately decide and proceed. This way, it is fully profitable for the investor and not completely time or luck dependent.
The next difference is the transparency
. In an ETF, the investor holds full control and can view typical ETF holdings online any time they want. However, this is impossible with mutual funds.
Liquidity and ETFs:
Liquidity is an important factor to be considered while investing. Money that could not be used in need is useless, both literally and metaphorically. ETFs provide a wide range of liquidity. Some funds are traded often like on a daily basis and there are some funds which are not traded often. This implies that trading is conducted in the most reliable, profitable funds. For example, funds like SPY, IWM, QQQ,and some others along with this are very popular which means they are liquid throughout the day.
Generally, when we say of investments what people would react is totally ghost-like. We all know people hate what they don’t understand. So does it goes with the investments? We normally have a basic motto that, we earn what we sweat for. But this philosophy is getting in a red zone. We are living in a world of digitalization. Even though the world is running fast, sweating is never an option. We earn what we think and how we think. Investments are the best platform for earning one’s money from their home. If Warren Buffet ever thought investments are pit-holes, then he could never be celebrated as the top richest man of the world. Who doesn’t like to earn by just lying down on their sofa with a cup of coffee in one hand and the newspaper in the other? All it need was better planning, proper thinking, and consistency. So, it is always more than better to invest, because this is the only place where you put money to get more of it.