An ETF is an exchange-traded investment product that must register with the SEC as an open-end investment company (or sometimes as a unit investment trust).
ETFs are similar to mutual funds. Like mutual funds, they pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings of the ETF are known as its portfolio, which is usually managed by an SEC-registered investment adviser. Each ETF share represents an investor’s part ownership of the ETF’s portfolio and the income the portfolio generates.
ETFs also have some differences from mutual funds. For example, unlike mutual funds, investors buy and sell ETF shares on national securities exchanges at market prices. In addition, ETFs can sometimes be more tax efficient than mutual funds.
