Investing in exchange- traded funds is a type of investment that is handled in the stock market, just like a stock. Its main characteristic is the objective of its investment policy, which is focused on producing a certain stock index. These funds are known by its acronym in English ETF (Exchange Traded Funds).
Exchange traded funds function, on the one hand, as investment funds, and on the other, as listed shares; defined by the following basic characteristics:
Liquidity, the operational form of buying and selling is similar to that of shares traded on the stock exchange, with the particularity that there are “specialists”, which are organizations that promote the liquidity of the product.
Transparency, the ETF portfolio is published daily; the stock exchange disseminates an estimated value, which allows the participant to have knowledge at all times of the development of their investment.
Immediately, operations are carried out at the purchase and sale prices offered by the counterparties at all times.
Competitive commission structure, it does not have a subscription or redemption commission, it only has a trading fee and a small total annual commission, low implicit costs, which allows a lower turnover.
Taxation, the tax regime applied to investors in ETFs, is applicable to shares, not to funds, therefore capital gains are not subject to withholding.
Diversification, ETFs provide the opportunity to participate in the evolution of the main markets, without having to invest in each and every one of the securities that make up the benchmark indices.
Accessibility, generally these exchange-traded funds have minimum investment amounts, so it is possible to access them with small capital.
Dividends, ETF participants have the possibility of receiving dividends on a regular basis (annual, semi-annual, etc.). The listed fund may remunerate investors, through dividends distributed by the companies that make up the reference index.
The structure of these funds is made up of the following elements:
The stock market where the listed fund is traded; the manager or issuer of the fund; the specialist (the one who provides liquidity to the fund); primary market (is the one accessed by certain entities, institutional investors or specialists, to subscribe and request the reimbursement of the shares); secondary market (one where all types of investors participate and where shares of the listed fund are bought and sold).
Investing in exchange-traded funds generates certain benefits, some of them are: they can cause lower operating expenses than traditional investments, which means a lower management commission.
ETFs can be bought and sold at any time on the market.
