Here's everything you need to know about Exchange-Traded Funds.
‘ETFs,’ or Exchange-Traded Funds, are pooled collections of investments, like stocks, bonds, or commodities. Like mutual funds, ETFs are packaged to allow investors access to a group of securities, offering more diversification than you’d get by buying, say, one company’s stock, or bonds from one issuer. But ETFs are different from mutual funds in important ways.
Lower tax burden: When an investor sells shares of a mutual fund, he or she is effectively forcing that fund manager to sell securities to honor the redemption request. That may result in capital gains implications for investors, whether or not they’ve sold their shares during the year. That doesn’t happen in ETFs, so there’s no tax burden.
Every so often, usually annually, an ETF manager will review the holdings in the fund and make sure they still match up to the mission set out as the fund’s original objective. But in general, there’s far less buying and selling of the securities that make up a passively-managed fund than an actively-managed one, which helps keep investor fees much lower.
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