Exchange Traded Funds (ETFs) are registered investment companies, either unit investment trusts or open-ended funds. Recently, ETFs are gaining popularity among investors, because of their stock-like characteristics and flexibility in long and short trades.
ETFs are passively managed index-based portfolios that track an index, a commodity or a basket of assets like an index fund, but whose shares trade intra-day on exchanges at market determined prices. ETFs combine the diversification of a fund with the flexibility of a stock.
As such, an exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETFs are the most popular type of exchange-traded product.
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