What is an ETF and how is it different from a mutual fund?

An exchange traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF is hence a security that tracks an index, a commodity or a basket of assets just like an index fund, but trades like a stock on an exchange close to its net asset value over the course of the trading day. ETFs track an index, such as a stock index or bond index, and are attractive as investments because of their low costs, diversification and stock-like features. ETFs, globally, have developed into the most popular type of exchange traded product.

It was State Street Global Advisors that launched the first ETF in 1993 with the introduction of the SPDR (SPDR is a trademark of Standard and Poor's Financial Services). Since then, ETFs have continued to grow in popularity and gather assets at a rapid pace, with current assets under management globally amounting to almost $3 trillion.

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