The exchange traded fund structure offers many attractive benefits, but investors should still understand potential risks.
The ETF structure combines features of both open-end mutual funds and stocks. ETFs and mutual funds hold a basket of securities, but ETFs are bought and sold throughout the day on an exchange like a stock. [Three Reasons Why Investors Like ETFs]
Fees are lower in ETFs. No-load mutual funds bought from the issuer cost about 1.5%, according to KPLU. Moreover, mutual funds may charge sales loads and come with redemption fees. ETFs, on the other hand, charge 0.62% on average.
ETFs also provide daily disclosures into holdings, whereas mutual funds are less transparent, typically revealing holdings on a quarterly basis.
Nevertheless, investors should consider some potential risks when picking out an ETF. For instance, ETFs with exposure to small sectors or niche markets can be volatile.