ETFs, or Exchange-Traded Funds, are investment funds that are traded on stock exchanges, much like individual stocks. An ETF holds a collection of assets, such as stocks, bonds, or commodities, and typically aims to replicate the performance of a specific index, sector, or asset class. Investors buy shares of the ETF, which represent a proportional interest in the underlying assets of the fund.
ETFs offer the benefits of diversification, as they allow investors to gain exposure to a broad range of securities through a single investment. They are known for their liquidity, as they can be bought and sold throughout the trading day at market prices. Additionally, ETFs often have lower expense ratios compared to mutual funds, making them a cost-effective investment option.
As exchange-traded instruments, their prices can fluctuate throughout the day based on supply and demand, distinguishing them from mutual funds, which are priced at the end of the trading day. ETFs can be structured in various ways, including equity ETFs, bond ETFs, commodity ETFs, and sector-specific ETFs, providing investors with flexibility to customize their portfolios according to their investment goals and risk tolerance.
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