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Exchange-traded fund

Exchange -Traded Funds (ETFs) refer to open-ended collective investment schemes. These funds are usually traded as shares on many global stock exchanges. ETF try to mimic a stock market index.

Some of the common features of ETF include the ability to trade continually and exchange listing, they are not actively managed but index linked, they have the ability to manage both contributions and redemption, their value is derived from the value of the underlying assets that comprises the fund. The structure of ETF facilitates a diversified and cost effective index fund investment. Both institutional and retail investors are attracted by this feature of the ETF.

Many of the U.S ETFs are index based. This index is determined by an independent company. At times, a proprietary index is also used. As for as ETF is concerned, institutional investors will establish a portfolio of shares similar to the ETF. These shares will be extended as loans to fund managers.

More Glossary Terms Explained here


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