An ETF (exchange traded fund):
 

  • Offers investors a simple, low cost means to track the performance of one of a wide range of stock market indices.
     

  • Issues shares which are traded on many stock exchanges and can be bought and sold by investors just like any other shares
     

  • May often offer a lower cost of tracking an index than a Unit Trust (Mutual Fund). This lower cost should be reflected in its Total Expense Ratio (TER).
     

  • Is an open ended investment vehicle (like a Unit Trust). This means that, unlike shares in an Investment Trust, if more shares are bought than sold one day, extra units can be created to avoid price movements that might otherwise reflect supply and demand within the ETF itself.
     

  • Unlike units in a Unit Trust, which can be traded only once a day, ETF shares are continuously traded just like other shares on stock exchanges. This means that at whatever time you trade an ETF the price should be much more predictable.
     

  • Is designed to closely track the movement of the underlying index because Institutions, unlike consumers, can swap shares in the ETF for baskets of the underlying shares, or vice versa, at any time.
     

  • In many cases incurs no liability for stamp duty for UK investors
     

  • Should declare whether or not it pays a dividend. If it does it may seek to follow an index on a price return basis, and if dividends are not paid, on a total return basis.
     

  • Can normally be included in UK ISAs and SiPPs You should check with your fund provider that a particular fund is eligible.

 

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