Today we will talk about a financial product, ETFs, which has grown a lot in Spain, and by itself not yet You know, we are going to explain what they are and how they work.
Glossary of the content of the article:
- Regulated brokers that accept investments in ETFs
- What are ETFs or quoted funds?
- How does an ETF work?
- Why invest in ETFs?
- What advantages do ETFs offer?
- How do the ETFs tax?
|ETF Broker||characteristics||Open account|
|Accepts investments in ETFs and CDFs
Minimum deposit of only 10 euros
Regulated by CySEC license 247/14
Digital options and Classic Options
New: Cryptocurrencies and Forex
|Risk warning: “Product difficult to understand, the CNMV has determined that it is not appropriate for retail investors due to its complexity and the high risk involved”|
Exchange Trade Fund – An ETF is a quoted index fund, which is an equity investment fund that tries to replicate the performance of stock indices.
Therefore, an ETF would be something like a hybrid between mutual fund and share .
For you to understand it better, it is called an investment fund because buying the shares of an ETF involves getting a basket of securities, as was the case with the usual investment funds, only in this case the ETF will also be listed on the Exchange. just like any action would. Hence the term hybrid.
In any case, it could be summarized that an ETF is a basket of securities or financial assets whose value is quoted in an organized market.
Basically the ETF replicates the movements of those values that are included in its interior. It should be noted that there are two types of replica, on the one hand we have the physical replica and on the other the synthetic replica .
To replicate the movements of the values of the basket, each of the values of the ETF is considered, and that is why we said that the quoted fund behaves more like an action, since the price is calculated taking into account the weighting of the values that are included inside.
In this way, an ETF can be bought and sold in the same way that we could buy and sell an action listed on the Exchange .
Through an ETF we can replicate the movement of an index or a financial product, which is an advantage because through the quoted fund you can have an equally diversified position as the index to which you refer to the ETF.
In fact, the ETFs arose at the time because practically the majority of the equity investment funds that existed at that time were not able to reach, far from matching the returns of the benchmark index.
We know that the funds that invest in the Spanish Stock Exchange have lower returns than the Spanish index, the IBEX 35 .
For this reason we began to work on an alternative to get the same profitability as the index, and that is how the index funds emerged, how the funds quoted of which we are talking today.
On the other hand, it is worth noting a difference between the standard funds, to call them in some way, and the quoted funds, and that is that the ETFs have lower management commissions , as a consequence of passive management.
As we said, the ETFs replicate a reference index, which means that by buying a single-trade participation, we will be acquiring all the shares that make up the benchmark index of the ETF.
In general, quoted funds tend to represent only a fraction of the benchmark, such as a tenth or hundredth part of the price, which, for example, if we have an index at the level of 15,000 points, the ETF will be approximately 150 € .
To have the exact value, we must consider the following:
- The dividends The dividends paid by the ETF shares must be taken into account, since they increase the value of the participation . In the same way, the interest that is generated when the dividends are placed in fixed income also increases the value.
- The commissions. On the other hand, management and deposit commissions reduce the value of the participation. And the same with other commissions and additional costs, such as the purchase-sale of shares of the ETF manager in the market for the creation of the shares. They also decrease the value.
There are many financial products to invest, but I would like to leave you some very interesting reasons why listed funds are a product that you should take into account:
- Management fees are lower : One of the advantages of listed funds is that their management fees are lower than the rest of funds. However, it is also important to know that they are still higher than what could be paid to have a portfolio of long-term securities .
- ETFs follow the evolution of the benchmark index , which means that if the index goes up by 10% the ETF will also go up by 10% and vice versa if it goes down.
- There is no minimum investment . You can buy as many shares as you want and at a lower price, if you decide to buy shares. As for the number of shares, this will increase or decrease as the market needs it. Therefore, if the demand of the ETF increases the manager will buy more shares in the market to create new shares, and if it happens to the contrary will get rid of them.
- They do not have an expiration date , so you can keep the funds quoted indefinitely.
Next we will see some of the characteristics of the quoted funds that could be considered as an advantage to decide to invest them.
We know that an ETF is an instrument that allows us to trade just like we do with an action, so they can be bought and sold with some ease. Let’s see some of its advantages:
- Transparency . At all times you can know the price of the ETF, because it represents the index and you will know what stocks make up the stock basket and its price.
- Flexibility . You can buy and sell ETFs during the trading day without having to wait at the end of the day. In addition, you can use Stop Loss type orders .
- Profitability . You can benefit from all the profitability offered by the securities that make up the portfolio, and you can compensate the bad results with the good ones.
- Diversification : An ETF is an instrument made up of shares from different sectors, which will help you to diversify more, even if only through a single fund.
Before finishing, regarding taxation, I will say that for ETFs tax similar to shares , and it will depend on whether the operations are less than 1 year or more, which will have to be taxed by the general tax base or by savings.
The applicable rate in the base of the savings will vary according to the benefits, and in the general base will be taxed at the current rate.
Today the tax sections are the following:
- 19% up to € 6,000
- 21% between € 6,000 and € 24,000
- 23% from € 50,000
The profits of the sold ETFs will have to be declared as capital gains generated as capital gains , regardless of whether the profits were reinvested or not.