Definition
Exchange-Traded Fund (ETF)
An ETF is a basket of securities, often tracking an index, that trades on the stock exchange like a single share throughout the day.
An ETF combines features of a mutual fund (diversified basket) and a stock (live trading). You buy and sell ETF units on the NSE/BSE at market prices in real time, through your demat account, unlike mutual funds priced once daily at NAV.
India has ETFs tracking indices (Nifty, Sensex), gold, and bonds. They offer low cost and intraday liquidity, with market makers keeping the price close to the underlying NAV. ETFs are a core tool for passive and tactical investors alike.
Related terms
- Market MakerA market maker continuously quotes both buy and sell prices for a security, providing liquidity and profiting from the bid-ask spread.
- Tracking ErrorTracking error is the standard deviation of the difference between an index fund or ETF's returns and its benchmark index's returns, measuring how consistently the fund follows the index.
- Index FundAn index fund is a passively managed mutual fund that aims to replicate the performance of a market index by holding the same securities in the same proportions, at low cost.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.