ETFs are without question a conceivable alternative to actively managed investment funds. After all, they are not only simple in structure, but also quite transparent. Nevertheless, investors should consider some criteria before considering an investment in ETFs. After all, this is not a perfect investment either.
Simply for the reason that there is no such investment. So let's take a look at the most important criteria for those considering an investment in ETFs.
Costs of the ETFsThe costs incurred are an important factor in any investment. ETFs are no exception. However, it can be said that ETFs are basically almost all cheap.
For actively managed equity funds, a management fee of 1.5 percent is common. In some cases, it can be even more. ETFs fare better in this regard. The management fee is almost always well below 1 percent.
This makes a big difference, especially for larger investments. However, management fees can vary from provider to provider. Investors should therefore not grab the first offer, but take a look at the different providers and compare their conditions. For example, there are providers who reserve the right to pay sales commissions to banks.
The management fees are ultimately higher here, as it is ultimately the investor who has to bear the costs arising from this.One indicator of the level of management fees is often the index. The more exotic the index, the higher the management fees as a rule. Investors are therefore better off sticking to the established indices. Thus, investing in ETFs is not possible without investing.
However, there is no denying that investors can get away cheaper overall than if they were to invest in actively managed mutual funds. Those looking for an investment without investing should look at online casinos, for example. We can say that you can earn little or no investment with casinos when we look at no deposit bonus. So investors should consider this option.
At least if you can not imagine to invest a lot of money in an investment.
Present indexThe index tracked does not only play a role because of the management fees. It is generally one of the most important criteria for an investment in ETFs. Basically, it can be said that an ETF only passively tracks an index. In other words, it does not pursue any strategies of its own.
Investors should therefore always make sure that they choose the right index for their investment objective. Indices can sometimes vary widely. Some contain few stocks, others many. There are also those that are calculated according to criteria that are easy or difficult to understand.
Especially for laymen, the selection of a suitable index can be a difficult task. If you do not have sufficient experience in the field, it is therefore usually better to opt exclusively for established indices from major providers, at least initially. Some points can help in choosing a suitable index. Among them are the creditworthiness and remaining maturities of the respective bonds.
Volume of fundsInvestors should always include the fund volume as a criterion.
In principle, it is only important to ensure that the respective funds are not too small. If this is the case, there is an increased risk. The reason for this is that such ETFs tend to be closed. Investors do not lose all their money as a result, but it can still lead to additional costs.
After all, the funds have to be reinvested. In some circumstances, this can bring about some complications. So, it is better to stick to ETFs that have the largest possible fund size in the first place. It's self-explanatory that larger providers do better in this regard than smaller providers do.
After all, their funds usually manage significantly more funds. As previously mentioned, widely used indices generally outperform exotic ones. This is partly because of the management fees incurred. So being aware of the volume of funds is mandatory for a good investor.
Structure of the fundsBasically, it is important to distinguish between two types of funds: Physical ETFs and synthetic ETFs.
Physical ETFs offer a high degree of transparency, as they hold all the shares of an index directly in the same proportion. Synthetic replication, on the other hand, is an artificial replication. Although the shares are also held directly here, the respective provider simultaneously concludes a contract with a bank. The bank serves to compensate for possible differences.
There is no question that the structure of the funds should be an important criterion for investors. Both types of funds have their advantages and disadvantages. So it definitely makes sense as an investor to get more information about it.
Tax regulationsIn principle, the tax regulations do not depend so much on the respective ETFs, but rather on the existing legal regulations. Nevertheless, it is important that investors inform themselves about the tax situation.
In principle, this has been far less complicated since 2021.So it is no longer quite so important to know how exactly certain types of ETFs are taxed. After all, the Investment Taxation Act has been in place since 2021.For investors, this means that all mutual funds will be taxed according to the same logic. There is a special formula for this. If you want to be on the safe side, you should in any case have a conversation with your tax advisor.
After all, income from ETFs also has to be taxed. So it is advisable that you know at least about the most basic things.
Distributing vs. accumulating ETFsAn important criterion is the way in which the income is used. As is the case with other investment funds, the income of ETFs is invested differently.
In principle, a distinction must be made between distributing and accumulating ETFs. Distributing ETFs have the advantage that both dividends and interest are passed on directly to investors. This is not the case with accumulating ETFs. Here, the income is invested directly in further shares or bonds.
Investors in accumulating ETFs therefore have to do without regular income. On the other hand, they have the advantage that the respective provider automatically takes care of reinvestment. This can save additional costs.