Stocks and different markets

DEFINITION of ‘Emerging Market Fund’

A mutual fund or exchange-traded fund that invests the majority of its assets in the financial markets of a single developing country or a group of developing countries. For the most part, these countries are in Eastern Europe, Africa, the Middle East, Latin America, the Far East and Asia.

Rewarding but high risk due to being vulnerable to political instability. These nations are typically identified by high growth rates in areas like natural production, and many have surpluses of rich natural resources that are heavily consumed by the entire world.
An exchange-traded fund that focuses on the stocks of emerging market economies, such as Latin America, Asia and Eastern Europe. The underling indexes tracked by emerging market ETFs vary from one fund manager to another, but all should be passively managed and contain equities from multiple countries, unless otherwise stated.

 

ETF – Exchange traded funds –

An ETF is a type of fund that owns the underlying assets (shares of stock, bonds, oil futures, gold bars, foreign currency, etc.) and divides ownership of those assets into shares.
ETF shareholders are entitled to a proportion of the profits, such as earned interest or dividends paid, and they may get a residual value in case the fund is liquidated. The ownership of the fund can easily be bought, sold or transferred in much the same was as shares of stock, since ETF shares are traded on public stock exchanges.

ETFs vs Mutual Funds:

Similarity – both instruments bundle securities together to offer diversified portfolios.

Difference – ETFs trade throughout the day, while mutual fund trade at the net asset value (NAV) at the end of the day.

ETF vs MF

Bonds are essentially debts – the person owing the money is required to pay “interest” (coupon) or to repay the bond at a later date, known as the maturity date.

Municipal Bond, is a bond issued by a local government or territory, or one of their agencies. It is generally used to finance public projects such as roads, schools, airports and seaports, and infrastructure-related repairs.

Pros – In the United States, interest income received by holders of municipal bonds is often excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code, and may be exempt from state income tax as well, depending on the applicable state income tax law

There are two main reasons that investors like to buy municipal bonds: The income they produce is generally not taxable, and they are perceived to be super-safe investments. Let’s explore these reasons more closely to see if they are valid.

Cons – When rates are low, the tax advantage is not very large.

Mutual funds –

A mutual fund is at its core a managed portfolio of stocks and/or bonds. You can think of a mutual fund as a company that brings together a large group of people and invests their money on their behalf in this portfolio. Each investor owns shares of the mutual fund, which represent a portion of its holdings.

Investors typically earn a return from a mutual fund in three ways:

  1. Dividends – on the stocks and interest on bonds held in the portfolio. Fund pays out nearly all of the income.
  2. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
  3. If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit in the market.

Pros of mutual funds:

  1. Professional management
  2. Diversification
  3. Economies of scale- trax cost lower than what one would pay if they buy individually.

Cons:

  1. Active management – lose or profit, manager still make money.
  2. Cost and fees
  3. Dilution
  4. Taxes

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