ETF stands for exchange-traded funds. As the name suggests these can be traded (bought and sold) on stock exchanges. Similar to buying shares in individual companies like Reliance or ICICI bank.
An ETF invests in multiple companies that are packaged together and sold as one unit. When the companies that the ETF invests in pay dividends, they send the cash to the ETF provider. It's the provider’s job to pass the dividends on to you or to reinvest them, in the case of total return ETFs.
ETFs are marketable securities that track any number of things such as but has its ownership divided into shares that trade on stock exchanges.
- A stock index (like the NIFTY 50)
- Bonds
- Commodities
- Currencies
- Specific sectors of the economy or
- A basket of different assets
ETFs are funds that provide small investors with the ability to diversify their investment portfolios. The value of an ETF is derived from the assets the fund holds.
