When it comes to different types of liquid assets, exchange-traded funds (ETFs) are quite a popular choice among investors. ETFs are a type of mutual fund that offers the convenience of investing in a wide range of securities through a single transaction. Apart from the diversification involved, ETFs also give you the benefits of stocks. They can be bought or sold at any time during trading hours. All these aspects make ETFs quite a promising investment avenue among the different types of liquid assets available.

ETFs are a valuable investment option for institutional investors who can utilize these investments to enter and exit from positions quickly, especially in scenarios where cash is needed urgently. Now that you have a basic idea of ETFs, let’s look at its types.

• Fixed-income funds
  Financial professionals recommend that you invest a part of your portfolio in fixed-income securities like bonds and bond ETFs. Bonds decrease a portfolio’s volatility and simultaneously provide you with extra income.
• Equity funds
  Equity ETFs perform as per the market scenario. If you plan to invest in these, you need to determine your objective: are you looking for value investing or growth investing? After you understand your objective, select the appropriate ETF to meet your goal.
• Real estate funds
  Real estate funds can prove to be a lucrative investment avenue. If you opt for a fund that invests in a particular form of real estate or one that is broader, the biggest USP of it is that they payout 90% of their taxable earnings to shareholders. This makes them quite attractive in terms of returns, even though they are riskier than bonds. Real estate funds are an excellent income source, particularly when inflation and short-term interest rates are near historic lows.
• Commodity funds
  Historically, commodities have had minor price correlation with equities. You can invest in a commodity ETF, which tracks the price changes of particular commodities, such as oil or gold, or invest in a commodity stock ETF that invests in the regular shares of commodity manufacturers. The former type of commodity ETF has less correlation with stocks. However, the latter is quite correlated. If your portfolio already has equities, a direct investment in commodity ETF is a great idea in this scenario.
• Specialty funds
  With the rising popularity of ETFs, various funds have emerged to meet every possible investment strategy. Two funds in specialty funds include inverse funds and leveraged funds. Inverse funds profit when a particular index fares poorly. On the other hand, as the name implies, leveraged funds can double or triple a particular index’s returns by using leverage. You can even purchase ETFs that perform both functions. However, if you decide to invest in these ETFs, you must understand the risks involved. Note that these ETFs are unreliable, high-risk investments.