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What are ETFs

“Exchange Traded Funds (ETFs) are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs.”

 

Source

ETFs differ from traditional open-end companies in respect of…

  • Individual shares are not sold directly to traders and these shares are issued solely in big numbers and are called ‘Creation Units’.
  • Creation Units are only bought in securities that project the EFT’s portfolio and the buyers are mostly institutions.
  • The institutions that buy a Creation Unit break down these ETF shares and sell them on a secondary market as individual shares.

Available ETFs for purchase

  • Broad-Based Equity Index Shares: These include indices like S&P 500 Index, the NASDAQ Composite Index as well as Cap indices.
  • Sector/Industry Equity Index Shares: These include indices such as energy, financial services, healthcare, real estate, technology, industrial, transportation and consumer goods.
  • Global/International Equity Index Shares: These indices are concentrated on a particular country or region.
  • Bond Index Shares: These include US Treasury bonds and corporate bond indices.