ETF Or Mutual Fund: Which Is Right For You?

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ETFs were once regarded as a trendy folly among those in the investment world. The view that is held on them in the more modern world is quite different, however. Today, they are held in just as high regard as the more traditional mutual funds. Many investors may ask themselves, what is the right investment for them? It is essentially a battle of ETF vs mutual fund.

For one thing, if you are looking for an investment option which is more flexible, ETFs are definitely the way to go. With funds, the value is determined at the end of the trading day, when the net asset value of the fund is determined. Any purchases and sales are directly between the fund and the investor. With an ETF, institutional investors purchase them in large lots and then proceed to trade them all day long, much like how stocks are traded.

There are tax advantages that ETFs bring that mutual funds do not. Because they are considered a passively-managed portfolio, ETFs usually have fewer capital gains than do mutual funds, which are actively managed. If, for example, an investor were to redeem $100,000 from a traditional fund, the fund would need to sell stocks in the amount of $100,000. This would create a capital gain within the fund at the end of the year. However, if the holder of an ETF wants to redeem $100,000, they do not have to sell anything. The ETF will merely issue what is known as an “in-kind redemption” to the shareholders. It is this method which has the potential to limit taxable capital gains.

The survivability of the company that is issuing the ETFs also needs to be looked at. Since there are more and more providers of product that are issuing ETFs in the marketplace, there is an increased risk of any one of these companies going bust. Obviously, when a company knows it is about to go under, they will need to liquidate the funds as quickly as possible, which is an assured way of losing any money which has been invested.

As you can see, it all depends on what your investment goals are as far as determining which is the better investing option. To find out more information, click here now to find out more in-depth information on both types of investable funds.