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What are Exchange Traded Funds (ETF) ?

An Exchange Traded Fund (ETF) consists of a basket of stocks like a Mutual Fund but is bought and sold like a Stock. This difference is important because Mutual Funds can be purchased or sold only once at the end of a trading day. The price of an ETF fluctuates like a stock's price throughout the trading day.

An ETF is created mainly to track an underlying index. This means all the stocks tracked by the index will be present in the ETF as well in the same proportion.

An ETF started off as a passive investment because of its index tracking nature. Lately, Actively Managed ETFS are also being floated

An Actively Managed ETF will also track an index for the most part but investment managers actively manage the weights in the ETF.

There are at least 2000 ETFS being traded in US Markets tracking a variety of indexes which provide exposure to different types of assets and styles. There are Stock, Bond, Commodity, REIT and Currency ETFS available now which have over $4 Trillion USD of investment.


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