An ETF is an index fund that trades on a stock exchange like a stock – all during the day and at different prices. Any class of asset that has a published index around it and is liquid can be made into an ETF.
ETFs differ from mutual funds. A mutual fund can be an index fund, but is not traded on a listed exchange like an ETF. The price, or net asset value, of a mutual fund is set at the close of trading and the purchase or sale price is at that closing price, where an ETF trades all day long and transactions can take place at any time during trading hours.
ETFs have lower management fees and are a bit more tax-efficient since capital gains are rarely distributed in an ETF as opposed to a mutual fund.
