Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are index-tracked investment funds that trade on a stock exchange. They are generally used to track the performance of particular market indices.
An ETF holds a range of assets like stocks, commodities and bonds and they trade close to its net asset value over the course of a trading day. This means that they change in value over the course of a given day.
There are a number of different kinds of ETFs including:
- actively managed ETFs
- leveraged ETFs
- exchange-traded grantor trusts.
Differences to mutual funds
The main difference between the two is that ETFs can be traded whenever the market is open. Like a mutual fund, an ETF collects together assets like stocks or bonds.
However, unlike a mutual fund, ETFs are listed on a stock exchange, providing investors with price transparency throughout the day and the ability to buy and sell holdings like trading a share, whereas mutual funds usually only price once a day.
ETFs generally also have lower costs associated with them than traditional mutual funds.
Most ETFs available in Europe are regulated under the European UCITS IV directive which provides a number of safeguards for investors:
- assets are segregated to help minimise risk
- increased transparency
- diversification limits to guard against investments becoming too concentrated in particular assets.
The value of investments can fall as well as rise and you may not get back the amount you originally invested. ISA eligibility depends on personal circumstances. Tax rules and allowances are not guaranteed and may change in the future.
Gary Jones trading as Chewton Financial Planning is an appointed representative of The Whitechurch Network Limited which is authorised and regulated by the Financial Conduct Authority. Financial Services Register No: 190859 http://www.fca.org.uk/register.
Neither Chewton Financial Planning nor its representatives can be held responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
The Financial Conduct Authority does not regulate National Savings, tax planning, taxation and trust advice, offshore investments or school fees planning.
The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK.
Please read our Privacy Statement before completing any enquiry form or before sending an email to us.