An exchange-traded fund (ETF) is an investment vehicle traded on stock exchanges. It holds assets such as equities or bonds, and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index.
This alternative investment vehicle is being sought after by some investors due to the following reasons:
- A tax-advantaged investment, since investors don't pay taxes until they sell their shares.
- Lower management fees and expenses than mutual funds. There are no 12-b-1 fees, sales loads, or exit charges; plus, there's no minimum investment required.
- Can be bought on margin, enabling investors to leverage their investment for huge gains.
- Short-selling is allowed sans uptick rule to profit even during a bearish market.
- Can be bought and sold instantaneously on major stock exchanges all day long, giving investors tighter control of their entry and exit prices.
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