Paper Topic: Mutual Funds vs Etfs: Historical Data, Argumentative Analysis and Position.

Only available on StudyMode
  • Download(s) : 33
  • Published : July 11, 2011
Open Document
Text Preview
Introduction
Mutual Fund is a term, meaning joint venture. As the human minds evolve more civilized, it also has undergone many evolutionary postures. Formerly it was practiced as close ended mutual fund in which combined investment had limits. Simply in those funds a restricted number of investors were allowed to play. As a result they used to have limited profit. While following the same pattern some innovative thoughts were put together along with the basic ingredients of the recipe of mutual funds to make it more reproductive. The consequences resulted in the body of open ended mutual funds. These open ended funds are still hailing the demanding curse of present age. Using the mutual fund scheme was more beneficial for the investors and was less fruitful for the manager or the body managing and investing the funds. Therefore to make more money from limited funds a newer system was stemmed into the fabric of trade. That system was to engage poor into this business by investing money in the form of blocks. This trick helped the managing body to withdraw more money out of the flow in the form of commission. On the contrary it involved less investment share which was easy to contribute by an average investors. Hence it had the characteristics of close ended mutual fund accompanied by replication of index. This system was easy to manipulate and friendly to the traders. In a nut shell the trade of funds took place in exchange of securities. It was a simple game that could be played without time limit. It had small shares than mutual funds, was more idealized and encouraged by majority of traders and investors. This scheme of investing the funds was given the name of exchange trade funds. It is the combination of index fund and close ended fund. Exchange trade system is more efficient than mutual fund system because it is easy to trade on fewer expanses and trade does not have time limits, buying and selling can be performed in same day. “ETFs have very low expense ratios, are traded intraday and are purchased from the secondary market through a broker who receives a commission”. (Rogers 108) History

The idea of joint or combined investment is centuries old even when there was no concept of currency. This fashion of mutual investment was started by the merchants particularly in Europe. While peeping into the past, the merchants of 17th century practiced to take their goods to the far areas where they were able to earn a handsome interest on their investment. But the urge to gain more profit forced their minds to seek some new trends in order to improve their profits. “Comfort with an investment vehicle is not a luxury but rather a necessity” (Wiandt and McClatchy 26). Hence to calm this curse of earning more they started to invest the money of other people into the business. In return these merchants promised to give them profit according to share. So this was the beginning of mutual fund practice. The investment shares incorporated by merchants did not have any limits that mean it was an open ended trade. The profits yielded were divided on the total shares and after subtracting the commission of trading agent distributed among the share holders. Till that time no legal frame work was existed to look after this innovative business. The people were getting more money and the government was not involved. In other words profit was there earning was there but no concept of tax existed. Hence, in 18th century this business was in its optimum youth and acquired the attention of the whole world. The custom of combined investment took its roots in U.K, U.S in 18th century but the trend of investment was close ended. This trend of close ended investment remained in exercise till early 19th century. After the crash of stock market investors started discouraging the close ended investment and once again open ended investment was in top gear. The major issue of concern was that there did not exist any system which can resolve the...
tracking img