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The advantage of an ETF for an ordinary citizen is that he can become a full-fledged investor, even if he has very small amounts of money.
ETFs as an Integrated Approach
The funds we are considering are mainly based on two principles:
- Follow one of the indexes, displaying its structure. Such funds are called passive or index funds.
- A game ahead of the market, when the ETF pursues an aggressive policy – with leverage, dividends, reversal.
In addition, the selection of assets can be carried out based on the following parameters:
- Copying the behavior of a specific financial instrument – say, oil.
- In terms of geography, it is America and Asia. In simple words, ETF is, in particular, the selection of shares of issuers according to a certain feature, in order to form an investment portfolio, for subsequent earnings. At the same time, investors can buy a share or shares of the fund on the stock exchange, and at the same time, thus, invest in several assets at once. There are noticeable savings on trade costs, and less stringent legal requirements on this issue.
- The economic sector – biotechnology, mining.
- The level of capitalization is large, small.
- The period during which the bonds are circulated – long-term or short-term.
- By credit rating. A particularly popular ETF is the one with the ticker SPY – SPDR S&P 500. It follows the movement of the well-known S&P 500 index.
Is it possible to work with ETF shares on the Moscow Exchange?
This method is provided. The cost of one share starts from ₽1, or $0.02. The fund provider takes a commission from minus 0.1% to plus 1.39% for 12 months of the value of assets. Cash is held every day, in equal installments, from the price of the ETF’s assets. There are no write-offs from the broker’s client account in favor of the provider.
Transactions are settled in the same way with shares: on the 2nd day after purchase, in the T+2 trading mode. Dividends of issuers included in the fund are transferred to the provider. He is already deciding what to do with the money next: to invest it again in the underlying assets, or to pay dividends to the holders of his own securities in the ETF.
When the provider decides to close a certain fund, the administrator will start selling assets from it, and transfer the funds received to depositors to an account – a brokerage or IIS. In the latter case, you will be entitled to a tax deduction if you remain the owner of an individual investment account for 3 years. After all, what is an ETF? It is a stock market asset that functions on a principle very similar to stocks.
When will it be profitable to work with the fund?
As a deposit option, a gold ETF, for example, will prove popular if a trader intends to become the owner of securities issued on the international market through an existing brokerage company in Russia. An alternative option is to focus on Eurobonds or precious metals. Through an ETF, the investor diversifies capital through the purchase of a basket of securities included in the index.
The advantages of investing in ETFs are:
- Trading in the same way that common stocks are traded.
- Opening access to the international market with a traditional broker account.
- The management and control of the investment portfolio is carried out via the Internet.
- It is allowed to implement a variety of strategies – active management, passive index management, arbitrage pricing or hedging.
- An investment start can occur even with a minimum of savings.
- In 24/7 mode, it is possible to manage assets with high-order liquidity.
There are a lot of different reviews about ETFs. It all depends on the level of profit for a specific time period. The customer should be satisfied. However, you need to take into account the real market conditions.