ETFs are similar to conventional mutual funds in that they provide investors with an affordable way to invest in a diversified basket of securities. But unlike conventional mutual funds, which can only be bought or sold at a fixed price at the end of each trading day, ETFs can be traded throughout the day at changing market prices on the stock exchange. In addition, you can buy ETFs on margin, as well as sell them short. ETFs also have lower costs than their conventional mutual fund cousins and are more tax efficient.

ETFs offer a number of key advantages, but the three most significant are low annual expenses, tax efficiency and the flexibility of intra-day buy-and-sell opportunities.

ETFs are cost effective because there is no active management to pay for and no expensive equity research required.

Unlike most traditional mutual funds - active or passive - ETFs are designed with tax efficiency in mind, which means they make substantially lower capital gains distributions over time.

	ETFs don't issue or redeem new shares when individual investors place buy-and-sell orders. This means the Fund manager doesn't have to sell shares (a taxable event) to meet redemption requests and, as a result, minimized capital gains distributions to remaining investors.
	ETFs are designed to track a relatively static benchmark, which means fewer trades and low turnover in securities; so capital gains for tax purposes occur less frequently than with traditional active funds.

ETFs can be bought and sold throughout the day on the stock exchange, be purchased on margin, sold short and stop loss and limit orders may also be placed.

ETFs do not have to carry cash in anticipation of redemptions. This saves the fund trading costs and ensures it is fully invested at all times. It also helps minimize the ETF's tracking error against the underlying benchmark.

Since ETFs must post their holdings everyday, the portfolio's investments are always visible enabling you to make more informed investment decisions. The transparency of conventional mutual fund holdings may, on the other hand, not be known to you until well after you've invested in the fund.

This chart gives you a quick overview of ETFs, making it easy for you to compare to other investments.

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