What are ETFs and why do we use them?

What are ETFs?

An ETF (Exchange-Traded Fund) is a 'basket' of securities (Stocks, bonds and real estate) bundled up into one product. To put it in simple terms, it's the process of buying fractional shares in hundreds and even thousands of companies through one product. This will allow you to diversify your portfolio in a simplified and cheaper way. 

You can also read this blog about ETFs here.

 

Why do we use ETFs?

At Sarwa, we believe in the Modern Portfolio Theory, which states that the best way to maximise your returns based on the level of risk you’re taking is through diversification. We accomplish that by using ETFs.

Our investment philosophy is based on Modern Portfolio Theory. MPT won a Nobel Prize!

ETFs bring a lot of different securities together and carry much lower fees. They are more transparent, which means you know exactly which securities you’re investing in. ETFs trade like stocks, so you can gain access to your money quickly and are a great way to create diversification and lower risk.

We believe in passive investing and tracking markets instead of trying to beat them. Here's why: 

 

Why ETFs and not Mutual Funds?

Even though they are very similar, ETFs beat Mutual Funds in different aspects.

Compared to mutual funds, ETFs have the following benefits:

1. Low costs: Sarwa's selected ETFs' average expense ratio is roughly 0.1%, while mutual funds' expense ratio is 1-2%.

2. Liquidity: Since they trade like stocks, meaning you can enter and exit the markets faster.

3. Passive investment: While mutual funds are active investments. Studies after studies have shown that active investments do not hit their benchmarks, deeming passive investing a better strategy.

4. Transparency: Since they disclose their earnings daily, allowing you to know your earnings at any point in time. Low minimum initial investment: Allowing you to begin investing with a much smaller amount.

All these factors considered make ETFs a better choice for investors than mutual funds.

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