What is an ETF (Exchange-Traded Fund)?

An ETF, or Exchange-Traded Fund, is indeed a type of fund that owns a collection of assets—such as stocks, bonds, or commodities—and trades on an exchange much like a stock. This means that investors can buy and sell shares of the ETF throughout the trading day at fluctuating market prices, similar to how they would trade individual stocks.

One of the key features of ETFs is their liquidity and flexibility, allowing investors to enter or exit positions at any time during market hours, which contributes to their popularity among both retail and institutional investors. Additionally, they often provide broad market exposure at a relatively low cost, making them a favored choice for diversification within an investment portfolio.

Other options do not capture the defining characteristics of an ETF. For example, limiting the definition to a fund that invests solely in publicly traded bonds would significantly narrow the scope of what ETFs can be, as many ETFs hold a range of asset classes. Similarly, describing a fund as privately held disregards the public trading capability of ETFs. Lastly, stating that these funds can only be purchased at specific intervals misrepresents their inherent flexibility and the ease of trading them throughout the day on a stock exchange.