Fund and ETFs – Understanding the Difference

Funds and ETFS are the investment vehicle of the mutual funds category that have grown in popularity with both institutional investors as well as individuals over recent times. Mutual funds are typically invested in a basket of different types of bonds, stocks, and other securities which represent a broad range of related companies. When these securities perform well there is a positive reflection on the market and the value of the individual stocks, bonds, etc. As a result, ETFS are created which represent the various parts of the portfolio as well as the market itself. Fund managers typically select and include ETFS that focus on particular sectors, industries, or national banks as well as other government and central banks.

ETFs fall into two basic categories: actively managed and passively managed. Actively managed funds are typically managed by professional traders who are paid to make trades in the market on your behalf. Typically the trades will involve short selling and buying of the securities themselves and they will be made accordingly. These actively managed funds usually take advantage of market trends and fluctuations to generate income. As the name implies, passively managed funds on the other hand are generally purchased from within the investment firm or from exchange traded funds.

In addition to the above, ETFs can also be categorized as exchange traded funds and actively managed funds. Exchange-traded funds are pools of securities which trade on predetermined exchanges such as the New York Stock Exchange and the London Stock Exchange. These pools are typically made up of a basket of different companies and sectors which mirror the sectors represented by the mutual funds. Active managed funds are typically bought and sold on the same exchanges, but instead of being managed by professionals, they are made by professional investors who are paid on a performance basis to make trades on your behalf. Funds and ETFs are excellent investment vehicles, particularly if you are looking for long term stability in your portfolio. If you are considering an avenue towards mutual funds and ETFs for your portfolio there are many pros and cons to choosing this alternative.