What type of funds are Exchange-Traded Funds (ETFs)?

What type of funds are Exchange-Traded Funds (ETFs)?

• A. Funds that are always closed-end
• B. Funds that trade like open-ended funds on exchanges
• C. Funds that can only be bought directly from a company
• D. Funds that require minimum investment amounts

Answer: (B)

Exchange-Traded Funds (ETFs) are a type of investment fund that trades on exchanges, similar to stocks. This characteristic allows investors to buy and sell shares of the ETF throughout the trading day, providing flexibility and liquidity that resembles that of individual stocks. The structure of ETFs combines features of both open-end and closed-end funds, but they are primarily characterized by their ability to be traded on an exchange. Unlike closed-end funds, which have a fixed number of shares traded at a market price that may differ from the net asset value (NAV), ETFs continuously issue and redeem shares based on supply and demand, which maintains liquidity and aligns the trading price of shares more closely with their NAV. This distinguishes ETFs from funds that can only be purchased directly from a company, which typically applies to mutual funds. Additionally, while some funds might have minimum investment amounts, ETFs do not have standardized minimums, as shares of an ETF can be bought in increments of a single share.

Exchange-Traded Funds (ETFs) are a type of investment fund that trades on exchanges, similar to stocks. This characteristic allows investors to buy and sell shares of the ETF throughout the trading day, providing flexibility and liquidity that resembles that of individual stocks. The structure of ETFs combines features of both open-end and closed-end funds, but they are primarily characterized by their ability to be traded on an exchange.

Unlike closed-end funds, which have a fixed number of shares traded at a market price that may differ from the net asset value (NAV), ETFs continuously issue and redeem shares based on supply and demand, which maintains liquidity and aligns the trading price of shares more closely with their NAV. This distinguishes ETFs from funds that can only be purchased directly from a company, which typically applies to mutual funds. Additionally, while some funds might have minimum investment amounts, ETFs do not have standardized minimums, as shares of an ETF can be bought in increments of a single share.