Certain investors abandon mutual funds to favor exchange-traded funds. Looking at your risk appetite, current financial situation, and investment goals, is it worth the move? Let us analyze what ETFs has to give and how it can help bolster your returns.

ETFs collect contributions from a group of investors and invest their money in various instruments, based on the fund’s goals. Basically, these are passively managed. Investors can purchase and sell these funds on the secondary market. Aside from that, the funds do not warrant the sale of assets to disburse shareholder payouts. Investors may opt to issue or redeem ETF shares for a bunch of shares.

ETFs charge almost low expense ratios unlike mutual funds. Also, such funds, having no carry load or 12b-1 fees, employ passive management. ETFs also offer fewer distributions, making it more tax-efficient than mutual funds. Since majority of ETFs are indexed, it is best suitable for investors who employ buy-and-hold strategy, hoping the market will render positive returns in the long run. Indexed funds only concentrate on an underlying index’s stocks; hence, no active manager is necessary to evaluate prospective trades and make investing decisions.

Is an ETF a good choice? Like what we have mentioned earlier, you need to determine what you desire to obtain from a particular investment. Are you searching for an affordable investment that promises hefty returns? Are you willing to invest in riskier assets in return for greater returns? If you answer yes to these two questions, an ETF is the answer.

There are two types of ETFs: inverse ETF and leveraged ETF. Inverse ETFs seeks to profit from a decrease in the value of an underlying benchmark. Conversely, leveraged ETFs utilizes derivatives to boost the returns of an underlying index.

When is the best time to change from ETF to mutual funds? If your mutual funds no longer meet your goals and the fees are too costly, switch. If you want an instrument that does not pay an annual income but will expand over time, choose ETFs. If you wish to secure your retirement, ETFs may be a great inclusion to your portfolio.