Exchange-Traded Fund (ETF)
A pooled investment vehicle that holds a basket of securities and trades on a stock exchange throughout the day like a single share.
What is ETF?
An exchange-traded fund (ETF) is an investment fund that holds a collection of underlying assets — such as stocks, bonds, commodities, or currencies — and trades on a stock exchange at market prices throughout the trading day, just like an individual stock. Most ETFs passively track an index such as the S&P 500, though actively managed ETFs also exist. ETFs combine the diversification benefits of mutual funds with the liquidity, price transparency, and tax efficiency of stock trading. They typically carry lower expense ratios than actively managed mutual funds. ETFs can be bought and sold at any point during market hours through a brokerage account, and the creation and redemption mechanism used by authorized participants generally keeps the ETF price close to its net asset value.
Example
The SPDR S&P 500 ETF Trust (SPY), launched in 1993 as the first US-listed ETF, holds all 500 companies in the S&P 500 index in proportion to their market capitalizations. An investor buying one share of SPY at approximately $525 in 2024 gains instant exposure to all 500 companies with a single transaction, paying an annual expense ratio of just 0.0945% — far less than most actively managed mutual funds.
Source: Investopedia — ETF