Question

Maria Coffey is considering whether she should invest som eextra money in a mutual fund or an ETF. Explain the key factors that should influence her decsion. TTT Arial 3(12pt) T E

Answer 1

ANSWER

Mutual fund and ETF: Mutual fund is a financial service organisation that receives money from its investors. The funds collected by the investors are invested in different portfolio to diversify risk and the share of profit is distributed among the investors. Exchange traded fund (ETF) is an investment company whose shares are traded on stock exchange and it can be bought and sold during the whole day.

Choosing between ETF and Mutual Fund: The following points will help her to take decision on the selection of ETF or Mutual Fund: Basis of Mutual Fund ETF difference Market segment Mutual funds have diversified ETF has narrow market and broader market than ETF. segment. The investment is The investment portfolio is made in specific sector, diversified to reduce risk. industry, and region. Tax Mutual fund gain helps to Capital gain tax exemption is management save tax. higher for ETF than mutual fund. Cost The overhead expenses The overhead expenses related to mutual funds are related to ETF are lower than higher. mutual fund as it does not carry customer account maintenance or call center management.

Conclusion: The investor who prefers to take risk can invest in mutual fund. Higher the risk higher will be the return. The investor who does not want to take risk and not ready to pay more expenses should invest in exchange fund transfer.

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