Exchange-Traded Fund | ETF
An ETF (Exchange-Traded Fund) is an investment fund that trades on a stock exchange, just like a normal stock.
It usually holds a collection of assets such as stocks, bonds, commodities, or a mix of investments.
It is often used by investors who want to spread their money across many investments at once instead of buying just one stock.
How ETF works with example:
When you buy 1 ETF share, you are buying a small piece of a fund that owns many assets.
A common formula linked to ETFs is:
NAV (Net Asset Value) = (Total Assets - Total Liabilities) / Number of Fund Units
Where:
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Total Assets = everything the fund owns
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Total Liabilities = costs or obligations
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Number of Fund Units = total shares of the ETF
Real-Life ETF Example
If you buy an S&P 500 ETF, you are indirectly investing in hundreds of large U.S. companies such as Apple, Microsoft, and Amazon.
So instead of buying all those shares one by one, you buy one ETF.
Why ETF is important
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Easy way to diversify
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Often lower cost than many traditional funds
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Can be bought and sold during market hours
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Good for beginners and long-term investors