Definition of Exchange-Traded Funds (ETFs)

Exchange-Traded Funds, commonly known as ETFs, are investment funds that are traded on stock exchanges, much like individual stocks. They are designed to track the performance of a specific index, commodity, or a basket of assets. Investors can buy and sell shares of an ETF throughout the trading day, which provides flexibility and liquidity that traditional mutual funds do not offer. One of the most appealing aspects of ETFs is their ability to provide diversification within a single investment. By purchasing shares in an ETF, investors gain exposure to a wide range of securities without having to buy each one individually. This makes ETFs an excellent choice for both novice and experienced investors looking to manage risk and enhance their portfolios. Additionally, ETFs typically have lower expense ratios compared to mutual funds, making them a cost-effective investment option. As we delve deeper into the world of ETFs, we will explore their types, benefits, drawbacks, and strategies for investing in them effectively.