A Look at ETF vs Mutual Fund Liquidity

Comparing the ETF vs mutual fund has become a common practice among investors. Both of these types of investments are very similar. At the same time, they also have several differences. When you are looking at these investments, you need to take into consideration the liquidity that they can offer you. Here are a few things to consider when it comes to ETF vs mutual fund liquidity.

Liquidity

Liquidity is one of the most important factors that investors regularly think about. Liquidity deals with the concept of how quickly you can buy and sell a security. You might have a large sum of money in some type of investment, but if you cannot gain access to it when you need it, it does not do you much good. Therefore, liquidity is important because it allows you to cash out your investments when you see fit.

Mutual Funds

Mutual funds have a unique way in which they are bought and sold. If you want to purchase a mutual fund, you are going to put your order in at anytime during the trading day. You can see what the mutual fund was priced at during the previous day, but you will not have an exact price for today. You will put your order in and at the end of the trading day, it will be filled. The net asset value of the fund is going to be calculated at the end of the trading day at 4:00 pm eastern time. Your order is going to be filled at this price. If you want to sell your shares, they are also going to be sold at this time. Because of this, it makes it difficult to know exactly how much you are going to be spending when you purchase shares of a mutual fund. You also have to wait until the end of the trading day to get your hands on shares. If you want to liquidate your holdings, this could potentially cause you some problems as the value could change significantly by the end of the day.

ETFs

An exchange traded fund or ETF is very similar to a mutual fund. The ETF also has a large portfolio of underlying assets. With ETF's, you will be able to buy and sell them a little bit more conveniently. As long as you have a trading account and the market is open, you should be able to buy or sell ETF's. These are essentially funds that you can trade on the exchanges. Therefore, you are simply going to have to place an order and it will immediately be filled. ETF's provide you with a way to liquidate your holdings quickly without worrying about the fluctuations of the value in the fund for the rest of the day. When it comes to liquidity, ETF's are considered to be superior to a traditional mutual fund. You have the freedom to buy and sell as you please.

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