ETF (Exchange Traded Fund)

Wider Diversification: ETFs offer broader exposure to various equities, sectors, or even countries, making them ideal for investors seeking to track specific market segments or global markets like BRIC (Brazil, Russia, India, China) with lower fees and easy tradability.

Lower Fees: Compared to mutual funds, ETFs are passively managed, resulting in lower expense ratios. Mutual funds, on the other hand, incur higher fees due to management, marketing, and other operational costs.

Trading Flexibility: ETFs can be traded like stocks throughout the day, offering real-time pricing, margin trading, and short-selling. This flexibility allows investors to make timely decisions, manage risks, and adjust their portfolios quickly, unlike mutual funds, which settle at the day’s end NAV.

Immediate Dividend Reinvestment: For open-ended ETFs, dividends are automatically reinvested, allowing investors to maximize their returns without delay. However, this may not apply to all ETFs, such as those structured as unit investment trusts.

Tax Efficiency: ETFs are generally more tax-efficient than mutual funds. Investors typically pay capital gains tax only when they sell their ETF shares, unlike mutual funds, which distribute capital gains to all shareholders, potentially leading to unexpected tax liabilities.

Price Stability: ETFs trade close to their net asset value (NAV) throughout the day, minimizing the risk of large price discrepancies. This stability contrasts with closed-end index funds, where prices can vary significantly due to demand and supply imbalances.