An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product that represents a basket of underlying assets, such as stocks, bonds, or commodities. ETFs are traded on stock exchanges, similar to individual stocks, and they aim to track the performance of a specific index or benchmark.
Key features of ETFs include:
Diversification: ETFs provide investors with exposure to a broad portfolio of assets, helping to spread risk.
Liquidity: ETFs can be bought and sold throughout the trading day on stock exchanges, offering liquidity to investors.
Transparency: ETFs disclose their holdings regularly, allowing investors to see exactly what assets they own.
Lower Costs: ETFs typically have lower expense ratios compared to traditional mutual funds, making them a cost-effective investment option.
Flexibility: Investors can use ETFs to gain exposure to various sectors, industries, or asset classes, providing flexibility in building a diversified portfolio.
Tax Efficiency: ETFs are generally structured in a way that can be tax-efficient, minimizing capital gains distributions compared to some other investment vehicles.
Investors can buy and sell ETF shares through brokerage accounts, and the market price of an ETF share is determined by supply and demand on the stock exchange. Overall, ETFs have become popular investment vehicles for their ease of access, diversification benefits, and cost-effectiveness.
