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What Is an ETF?

An ETF (Exchange Traded Fund) is a type of mutual fund that is listed on a stock exchange and can be traded in real time, just like a stock.

Key features

Many ETFs are designed to track a stock market index, such as the Nikkei Stock Average or TOPIX, or the price of a commodity such as gold or oil. Because they are listed on an exchange, anyone with a brokerage account can place buy and sell orders during trading hours, just as they would for a stock.

What to keep in mind

Many ETFs tend to have relatively low expense ratios, though the actual cost level varies by fund. A gap can also arise between the ETF's price and the index it tracks (tracking error), so it is advisable to check the tracked benchmark and the costs involved in the prospectus before purchasing.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

How does an ETF differ from an ordinary mutual fund?
An ETF is listed on a stock exchange and, like a stock, can be bought and sold at a real-time market price during trading hours. An ordinary mutual fund, by contrast, is traded only at a net asset value calculated once per day.
Are ETFs guaranteed to rise in value?
No. An ETF is a financial product whose price moves in line with the underlying index or asset it tracks, and its principal is not guaranteed. If the tracked benchmark falls, the ETF's price falls as well, and past performance does not guarantee future gains.

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