Mutual Funds – All you need to know
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Exchange Traded Fund (ETF) – Meaning & How It Works
Key Mutual fund Terms
An Exchange Traded Fund (ETF) is an investment fund that combines features of both mutual funds and stocks.
Important characteristics of ETFs include:
Traded on Stock Exchanges
Unlike traditional mutual funds, ETFs are bought and sold on stock exchanges during trading hours, just like individual stocks.
Tracks an Underlying Asset or Index
Most ETFs track a market index such as Nifty 50 or Sensex, while some track commodities like gold or other asset classes.
Real-Time Pricing
ETF prices fluctuate throughout the trading day based on demand and supply in the stock market.
Requires Demat and Trading Account
To invest in ETFs, investors must have a demat account and a trading account with a stockbroker.
Lower Management Costs
Because ETFs often follow passive investment strategies, they typically have lower expense ratios compared to actively managed mutual funds.
Diversification Benefits
By investing in an ETF, investors gain exposure to a basket of securities rather than a single stock.
ETFs are suitable for investors who want flexibility, transparency, and cost efficiency while investing in financial markets.
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