ETFs are passive funds that track their related index and have the flexibility of trading like a security. They are managed by professionals and provide the investor with diversification, cost and tax efficiency, liquidity, marginability, are useful for hedging, have the ability to go long and short, and some even provide quarterly dividends. The secondary market is where individual investors can trade as little as a single share during trading hours on the exchange. Webs mirror indices in foreign equity markets. Also, ETFs provide additional tax benefits that mutual funds cannot offer.
Mutual funds sell securities to cover redemptions that produce capital gains.
The institution can determine which, and how much of a security they are going to swap as long as it is of equal value to the amount being redeemed. The benefit of swapping securities at the lowest cost-basis is that it avoids capital gains. However, individual investors trading in the secondary market could be subject to capital gains since they do not have the opportunity to swap securities in kind. Costs Most open-end index funds can be purchased directly from their distributors without a transaction fee. Exchange-traded funds, on the other hand, are subject to regular brokerage commissions on all purchases and sales.