Posted in Finance, Accounting and Economics Terms, Total Reads: 55
Definition: Passive ETF
Passive ETF, or passive exchange trade funds, are investments where returns are lower. ETF i.e. Exchange traded funds were established in late 1900’s. The whole idea behind their creation was to track specific indexes. With the help of ETF, an investor can keep a track of the index on the basis of a single portfolio which he/she has invested in.
In ETF, investors generally trade in the securities/stocks which gives the culmination of the entire market. Thus, we can say that the securities which are bought and sold i.e. which are in an investor’s portfolio makes up for the entire market in just one trade. There are two types of ETF’s,
• Passive ETF
• Active ETF
As the name says, in Active ETF’s, higher returns are earned on the investments.
In case of Passive ETF, usually investors manage their portfolio themselves and prefer buying and holding securities for a longer period rather than buying and selling in a sport time span. Since the investors are buying and holding stocks, this type of investment is termed as Passive ETF. Also, in case of Passive ETF, the trading is done on regular basis in a day (Intraday trading), hence it provides more flexibility. The transaction cost for Passive ETF’s are lower since it earns as the index earns, it does not outperform the index and earn high revenues like Active ETF’s.