Question

Which are advantages of ETFs over conventional mutual funds?

Check all that apply:

ETFs offer a potential tax advantage.

ETFs can be bought on margin and sold short.

ETFs have lower risk than conventional mutual funds.

ETFs trade continuously on an exchange.

ETFs have lower expense ratios than actively managed mutual funds.

Answer 1

1. Yes, ETFs offer a potential tax advantage. Investors putting money in exchange traded funds that bet on public sector companies will get tax exemption like that of tax savings in equity mutual schemes. Under equity linked savings schemes, investments of up to 1.5 lakhs every year is tax exempt.

2. Here too Yes for the question, ETFs can be bought on margin and sold short. ETFs are essentially mutual funds that can be bought and sold like shares of stock throughout the trading day. Their pricing and structure allows them to be purchased on margin, like stocks. They can also be sold short and otherwise be traded on the same fashion as individual stocks.

3. No, ETFs have higher risk than conventional mutual funds. Your Exchange-Traded Fund (ETF) Is Riskier Than You Think. Unlike a mutual fund, though, ETFs are actively traded during market hours. In addition, ETFs are constructed to trade at par with the underlying assets.

4. Yes, ETFs are bought and sold during the day when the markets are open. The pricing of ETF shares is continuous during normal exchange hours. Share prices vary throughout the day, based mainly on the changing intraday value of the underlying assets in the fund.

5. Yes, An ETF that tracks the S&P 500, for example, includes any stock listed on that index. Though passively managed mutual funds, such as index funds, typically also have much lower expense ratios than their actively managed counterparts, the extra fees associated with mutual funds make ETFs the cheaper choice.