Compare this to ETFs, which provide daily disclosure so the investor knows which holdings the fund has, giving it an added layer of transparency over mutual funds. An investor can simply go the firm that offers the ETF products to obtain the daily holdings or visit an investment research database like Morningstar.
“Many investors want to know which securities an ETF portfolio holds,” Investopedia noted. “While mutual funds only report their holdings on a monthly or quarterly basis, ETFs offer daily disclosure of their portfolio holdings, including their top 10 holdings, industry sector allocations and geographic allocations.”
3. Lower Investment Minimums
A number of mutual funds will require a minimum investment that can range from anywhere between $500 to $3,000 for the individual investor. A prospective ETF investor doesn’t need to have war chests of capital in order to begin investing in ETFs–it will be largely dependent on the share price and how many shares of the ETF the investor wishes to own.
“If you don’t have the $2,000 minimum investment required by some mutual funds, you can use ETFs as an alternative,” cited the Wall Street Journal. “You can assemble a decent portfolio with as few as three ETFs. ETFs can perform the same acrobatics that stocks can.”
As such, ETFs are an excellent way for the beginning investor to obtain the diversification benefits that the investment vehicle brings via an index at a low cost.
For more baseline knowledge of investing in ETFs, click here.