What is ETF - Exchange Traded Fund?
An ETF, or Exchange-Traded Fund, is a basket of investment securities like stocks, bonds, or commodities that trades on a stock exchange just like individual stocks. This means its price fluctuates throughout the day based on supply and demand.
- Trading: Unlike mutual funds, which trade at the end of each day, ETFs can be bought and sold throughout the trading day like regular stocks, allowing for greater flexibility and potentially lower trading costs.
- Variety: ETFs come in countless flavors, tracking market indices (like the S&P 500), specific sectors (e.g., technology), or even niche assets like cryptocurrencies.
ETF vs Mutual Fund
| Feature | ETF | Mutual Fund |
|---|
| Trading | Throughout the day | Once daily, after market close |
| Liquidity | Highly liquid, buy and sell instantly | Less liquid, order may not be filled at desired price |
| Fees | Typically lower expense ratios | May have higher management fees and sales charges |
| Transparency | Real-time price updates | Net Asset Value (NAV) calculated once daily |
| Minimum investment | Varies, often lower than mutual funds | May have minimum investment requirements |
ETF vs Index Fund
| Feature | ETF | Index Fund |
|---|
| Investment objective | Track a specific index passively | May track an index or have actively managed components |
| Management | Passively managed, follows index composition | Can be passively or actively managed |
| Fees | Generally lower fees | Fees may vary depending on management style |
| Flexibility | Can be traded throughout the day | Typically bought and sold at the end of the day |
