A stock exchange-traded fund (ETF) is a type of investment fund that is traded on stock exchanges, much like stocks. ETFs are designed to track the performance of a particular index, commodity, bond, or a basket of assets. They offer investors exposure to a diversified portfolio of assets in a single investment, providing convenience and flexibility.
ETFs are structured as open-ended investment funds, meaning they can issue and redeem shares as needed, based on investor demand. They typically aim to replicate the performance of their underlying index or asset by holding the same securities in the same proportions as the index they track. This passive management approach often results in lower management fees compared to actively managed funds.
Investors can buy and sell ETF shares throughout the trading day at market prices, just like individual stocks. This provides liquidity and allows investors to enter and exit positions easily. ETFs also offer diversification benefits, as they hold a range of assets within a single investment vehicle, reducing individual stock risk.
Overall, ETFs have become popular investment vehicles for both individual and institutional investors due to their liquidity, diversification, and cost-effectiveness.
