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Mutual Funds vs ETFs

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Introduction

Paper topic: Mutual Funds vs ETFs: historical data, argumentative analysis and position. Introduction Mutual Fund is a term, meaning joint venture. As the human minds evolve more civilized, it also has undergone many evolutionary postures. Formerly it was practiced as close ended mutual fund in which combined investment had limits. Simply in those funds a restricted number of investors were allowed to play. As a result they used to have limited profit. While following the same pattern some innovative thoughts were put together along with the basic ingredients of the recipe of mutual funds to make it more reproductive. The consequences resulted in the body of open ended mutual funds. These open ended funds are still hailing the demanding curse of present age. Using the mutual fund scheme was more beneficial for the investors and was less fruitful for the manager or the body managing and investing the funds. Therefore to make more money from limited funds a newer system was stemmed into the fabric of trade. That system was to engage poor into this business by investing money in the form of blocks. This trick helped the managing body to withdraw more money out of the flow in the form of commission. On the contrary it involved less investment share which was easy to contribute by an average investors. Hence it had the characteristics of close ended mutual fund accompanied by replication of index. This system was easy to manipulate and friendly to the traders. In a nut shell the trade of funds took place in exchange of securities. It was a simple game that could be played without time limit. It had small shares than mutual funds, was more idealized and encouraged by majority of traders and investors. This scheme of investing the funds was given the name of exchange trade funds. It is the combination of index fund and close ended fund. ...read more.

Middle

Evidence that goes in favor of the exchange funds is that they are exempt of the taxes or have to subject little taxes because they are traded as stock. On the other hand mutual funds comprise big amounts and are liable to taxes heavily comparatively than exchange trade funds. Therefore exchange trade fund is the subject of choice for the players with less money. Effect of time spectrum on Mutual funds and ETFs Though the present time is entitled to the exchange trade funds but they are only effective for a short period of time. But one of the back draws of exchange trade funds is that one has to follow the index of the market. And most of the exchange trading takes place on the previous market fashion. Market is a very volatile subject and no one can portrait the hundred percent trend of market. "ETFs may simplify the process of building a portfolio that corresponds to a specific asset allocation model". (Morris 109) Therefore, it is good to do exchange trade but not in long terms. The ease of this trade is one can sell the stock before it goes to decline. But if he missed the case the results could be catastrophic. Mutual funds on the other hand are safe investments and do not subject to sudden decline. Because they do not have as much liquidity as shown by exchange trade funds. If one has large amounts to invest for a long term investment mutual funds are the choice of trade. Here again the problem of generating profits arises. Mutual funds are safer but exchange trade funds can generate more profits and returns in a very short time. Hence if we talk about the time spectrum mutual funds are less effective in earning profits than exchange trade funds. Effect of fee on trading mutually or exchange trading As mutual funds are safe and allow the investors to sit back and relax but they have very complex fee structures. ...read more.

Conclusion

If the present situation of the world is analyzed most of the trading is taking place on barter system. Individuals having one particular good wait for the proper time by analyzing the market trend and then sale it in exchange of the money or other goods. Majority of the world's population do not hold precious assets what they can invest into the business. Rather majority belongs to subclass or poor community which has to earn money rapidly to meet their basic needs. Keeping all these aspects in mind Exchange is the better option rather than availing the mutual funds which are more expensive and more time consuming. While considering the managers of mutual funds investments, there are more chances that managers may exploit the interests of investors by not letting them know properly about their current status. Also in case of mutual funds there always are conflicts of interests, the reason behind could be it is very hard to manage a big investment than managing the small investments as is in the case of exchange trade funds. There are few things necessary to observe before on enter into the exchange trade. Exchange trade is the derivative of index fund that totally operate on the basis of previous market values and trends. Before investing it should be clear in one's mind that he knows all the steeps and slops of market values or if some trading agent got to be involved he should have tremendous grip on the market flow and twists. By considering all the above mentioned facts it is obvious that exchange trade is the most appropriate trade as it bears less expenses have more risks but less loses. Also it is friendly to the traders having less capital in hand. Exchange trade follows the market trends the money of investors can be liquefied according to desires whenever there is need to buy or sell the stock. Hence the easiest and convenient way of making money through trade is the exchange trade fund and is gaining the popularity due to its flexible mode of operation. ...read more.

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