What Is an ETF?
An Exchange-Traded Fund (ETF) is a collection of securities — stocks, bonds, commodities, or crypto — bundled into a single fund that trades on a stock exchange throughout the day, just like an individual share.
How ETFs Work
ETFs typically track an index (such as the S&P 500) or a specific sector. When you buy one ETF share, you gain exposure to all the underlying holdings in proportion to their weighting in the fund.
Advantages of ETFs
- Diversification: One purchase provides exposure to dozens or hundreds of securities.
- Low cost: Expense ratios are typically much lower than actively managed funds.
- Liquidity: Trade on exchanges during market hours at real-time prices.
- Transparency: Holdings are publicly disclosed daily.
- Tax efficiency: Generally more tax-efficient than mutual funds.
Types of ETFs
- Index ETFs (e.g., tracking the S&P 500 or MSCI World)
- Sector ETFs (e.g., technology, healthcare)
- Bond ETFs
- Commodity ETFs (e.g., gold, oil)
- Crypto ETFs
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