Institutional Investors See Advantages in Index Funds

Institutional investors are a segment of the market consisting of traders who make large trades that qualify them for preferential treatment with a broker. This can include lower commissions and fewer regulations that dictate their market participation. Examples of institutional investors are pension funds and other types of large entities that buy quantities of shares in bulk amounts.

This type of investor can buy shares in many types of market products that include individual stocks, various types of bonds and specific commodities. However, an institutional investor many also decide on a type of index fund instead of individual securities. One type of index fund that is an option to a passive institutional investor is an exchange traded fund. This type of fund is traded on stock exchange has assets that include stocks, bonds and commodities. They track an index such as the S&P 500.

The use of an exchange traded fund is beneficial to the institutional investor because of the ability to be flexible. This type of market vehicle is often seen as an alternative to using futures. This type of product does not require the use of margins, a special account or documentation that may be necessary for other types of financial products. Using this type of investment allows for tracking a market segment or product without having to buy large quantities of an individual security.

Other types of institutional investor that are more active include hedge funds. Investments for this type of fund are convenient for active traders because they are traded in the same way as stocks. Funds offer flexibility that is not available with other types of index funds. Traders will also benefit from the use of exchange traded funds because they are not included in the short sale uptick rule.

This use of exchange traded funds or available in many markets such as those in countries in Asia. This will include the Singapore Exchange and the Hong Kong Exchange. Investors in these markets have access to funds that are not available in the European and American markets. However, the type of fund that is used for an investment vehicle will depend on various factors such as risk and return.

Traders that will take advantage of exchange traded funds are those that seek to have long-term growth of capital and active returns on their investment. They are a great way to track the investment return of a market segment or specific type of financial product.

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