Exchange
Traded Fund. A fund that tracks an index, but can be traded like a stock. ETFs
always bundle together the securities that are in an index; they never track
actively managed mutual fund portfolios (because most actively managed funds
only disclose their holdings a few times a year, so the ETF would not know when
to adjust its holdings most of the time).
Investors
can do just about anything with an ETF that they can do with a normal stock,
such as short selling. Because ETFs are traded on stock exchanges, they can be
bought and sold at any time during the day (unlike most mutual funds). Their
price will fluctuate from moment to moment, just like any other stock's price,
and an investor will need a broker in order to purchase them, which means that
he / she will have to pay a commission.
On
the plus side, ETFs are more tax-efficient than normal mutual funds, and since
they track indexes they have very low operating and transaction costs
associated with them.
There
are no sales loads or investment minimums required to purchase an ETF. The
first ETF created was the Standard and Poor's Deposit Receipt (SPDR, pronounced
"Spider") in 1993. SPDRs gave investors an easy way to track the
S&P 500 without buying an index fund, and they soon become quite popular.
Src:InvestorWords.com
No comments:
Post a Comment