What are the Types of Exchange-Traded Funds?
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An exchange-traded fund or ETF is a security that you can buy or sell on the stock exchange market. An ETF tracks the indexes, sectors, commodities, and other assets of the market. You can purchase and sell the exchange trade funds like regular stocks and shares in the share market.
The ETFs are categorised into various types, and they are listed as follows:
Index exchange-traded funds: It is one of the most popular ETFs in the market. It replicates the performance of an index.
Stock exchange-traded funds: These ETFs enable investors to identify the multiple equities in an individual index without purchasing the stocks.
Bond exchange-traded funds: Bond ETFs have high liquidity compared to other types of ETFs. They also integrate monthly income payouts and replicate the returns of an index.
Commodity exchange-traded funds: As the name suggests, with these ETFs, you can invest in commodities like gold, silver, diamonds, and other precious and rare metals.
Currency exchange-traded funds: A currency ETF helps investors to trade in foreign currencies. You can only trade during trade hours and track the foreign exchange market. Currency exchange-traded funds are reasonably priced.
Actively managed exchange-traded funds: The decisions are managed by the fund manager to diversify the portfolio of underlying assets.
Inverse exchange-traded funds: This type of ETF is also known as ‘Short ETF’ or ‘Bear ETF’. The funds and returns are based on short selling and trading derivatives.
Leveraged exchange-traded funds: The leveraged exchange-traded funds are highly risky trade funds because they involve debts and financial derivatives to enhance the returns over underlying assets.
Thus, ETFs are generally of eight types, and they are briefly explained above for you to understand the context of these funds. You can choose to invest in one or the other based on your preferences and portfolio requirements.
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