Definition: Exchange Traded Funds (ETFs) are inherently index funds which invest the corpus in a preannounced benchmark index. The name ‘Exchange Traded’ implies that these funds are listed on a stock exchange and traded on a continuous basis just like ordinary stocks or shares. ETFs are subject to continuous change in prices just like ordinary shares and can be bought or sold at any time during a trading day, enabling investors to take advantage of continuous price movements.
Explanation: ETFs carry significant potential for investors, who can take advantage of the beneficial aspects of a mutual fund and at the same time trade like shares. Buying and selling of ETFs is possible with the help of a broker or through an online trading account. A very popular class of ETF is Gold ETF where investors can purchase gold on paper without undertaking the risk of possessing it in physical form.