Benefits of Exchange Traded Funds include:
- Easy diversification of investments – spread the risk
- Lower costs than other investment products – not usually actively managed
- Flexibility – buy and sell at current market prices any time in the trading day
- Market exposure – diverse variety of markets
- No stamp duty on ETFs traded through the London Stock Exchange (ETFs are registered in Dublin)
- You can invest in an ETF with a tax-free wrapper, such as an ISA or Child Trust Fund
Exchange Traded Funds also have drawbacks:
- Higher risk because they are not actively managed
- Doesn't match growth of an index – charges and timing
- The value can go up as well as down
- Trading ETFs internationally means value can be affected by currency fluctuations