Exchange-traded fund
An exchange-traded fund (ETF) is an investment fund that holds a portfolio of financial assets and whose shares are traded on a stock exchange in the same manner as ordinary shares of publicly listed companies. ETFs may invest in equities, bonds, commodities, currencies, money market instruments, real estate investment trusts (REITs), derivatives, or other financial assets, and may be designed to track the performance of a specific market index, sector, commodity, investment strategy, or asset class. Since their introduction in the early 1990s, exchange-traded funds have become one of the fastest-growing categories of investment products due to their liquidity, transparency, diversification, and relatively low operating costs.
ETFs are generally structured as open-ended investment funds or unit investment trusts, depending on the jurisdiction in which they are established. Most ETFs are passively managed and seek to replicate the performance of a benchmark index, such as the S&P 500, the NASDAQ-100, the FTSE 100 Index, or the MSCI World Index, although actively managed ETFs have become increasingly common. ETF shares are created and redeemed through a mechanism involving authorized participants (APs), which exchange baskets of underlying securities for ETF units in the primary market. This creation and redemption process helps maintain the market price of ETF shares close to their underlying net asset value (NAV) by facilitating arbitrage when price differences arise between the ETF and its portfolio holdings.
Exchange-traded funds are traded continuously throughout the trading day on stock exchanges, allowing investors to buy and sell shares at prevailing market prices. ETFs are widely used by retail and institutional investors for portfolio diversification, passive investing, asset allocation, hedging, liquidity management, and tactical trading strategies. They are available across numerous asset classes and investment themes, including domestic and international equities, fixed-income securities, commodities, precious metals, currencies, environmental, social, and governance (ESG) investments, smart beta strategies, leveraged products, inverse strategies, and sector-specific portfolios. Many ETFs also serve as the underlying assets for derivatives, structured products, and other investment instruments.
Exchange-traded funds are listed and traded on major securities exchanges worldwide, including the [[New York Stock Exchange]], the Nasdaq Stock Market, the London Stock Exchange, the Toronto Stock Exchange, the National Stock Exchange of India, and the BSE Limited. They are regulated by securities authorities such as the U.S. Securities and Exchange Commission (SEC), the Financial Conduct Authority (FCA), the Securities and Exchange Board of India (SEBI), and other national regulators. Through their combination of diversification, transparency, intraday liquidity, and cost efficiency, ETFs have become one of the most widely used investment vehicles in global financial markets.