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

FeatureETFMutual Fund
TradingThroughout the dayOnce daily, after market close
LiquidityHighly liquid, buy and sell instantlyLess liquid, order may not be filled at desired price
FeesTypically lower expense ratiosMay have higher management fees and sales charges
TransparencyReal-time price updatesNet Asset Value (NAV) calculated once daily
Minimum investmentVaries, often lower than mutual fundsMay have minimum investment requirements

ETF vs Index Fund

FeatureETFIndex Fund
Investment objectiveTrack a specific index passivelyMay track an index or have actively managed components
ManagementPassively managed, follows index compositionCan be passively or actively managed
FeesGenerally lower feesFees may vary depending on management style
FlexibilityCan be traded throughout the dayTypically bought and sold at the end of the day

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