ETF 101: Understanding the Basics
Read Time 3 MIN
Key Takeaways:
- ETFs are low-cost, tax-efficient investment funds that trade like stocks and offer access to a wide range of asset classes and strategies.
- Key benefits include daily transparency, intraday tradability, and broad accessibility, making ETFs flexible tools for portfolio diversification.
- Compared to mutual funds, ETFs generally have lower fees, no minimum investments, and can be bought or sold throughout the trading day.
ETF 101: Understanding the Basics
ETF 102: The Inner Workings of ETF Creations and Redemptions
ETF 103: Is This ETF Right for You?
ETF 104: Getting the Most Out of Your ETF Trades
ETF 105: Gaining Efficient Access to Bond Markets
ETF 106: Debunking Fixed Income Myths
ETF 107: Passive vs. Active ETFs Explained
Options for Investors
An ETF (Exchange Traded Fund) is a diversified collection of assets similar to a mutual fund, though a key difference is that an ETF trades on an exchange throughout the day like a stock. Being relatively low cost, tax efficient, and generally easy to buy and sell, ETFs have become a popular choice for many investors.
As of June 2025, there were more than 4,300 ETFs available in the U.S. market alone1. Through ETFs, investors can gain access to a wide variety of asset classes and strategies—from stocks and bonds to commodities, domestic and foreign markets, individual sectors, alternative investments and sophisticated active strategies. Investors can use ETFs to support a range of their investment goals, whether ETFs form the core of a portfolio or are used to add diversification or manage potential risk.
Key Attributes of an ETF
Low Cost
ETFs are known for their relatively low cost and simple fee structures. Unlike mutual funds, there are no minimum investment amounts beyond the share price of the ETF. Buying and selling an ETF is akin to trading a stock. Therefore brokerage commissions and trading spreads are considerations when evaluating the total cost of an ETF.
Transparency
Underlying ETF holdings are generally disclosed in full on a daily basis, and share prices are updated in real time. Investors can gain up-to-date insight into their range of exposures, which can empower more informed asset allocation decisions.
Tax Efficient
Thanks to their structure, ETFs may be considered some of the most tax-efficient investment vehicles available to investors today. The underlying mechanics, such as the way ETF shares are created and redeemed, generally result in daily operations that generate relatively few taxable events. This, in turn, can translate into lower taxes for investors.
Tradability and Accessibility
Investors can quickly gain access to different asset classes, geographic regions, sectors, or strategies, from niche to broad. ETFs can offer exposure to investments that might otherwise be difficult to access, such as commodities or currencies. Investors are also able to trade ETFs intraday and employ trading strategies not possible with mutual funds, such as selling short or using limit orders.
ETFs and Mutual Funds Compared
Both ETFs and mutual funds have attractive investor benefits including portfolio diversification and professional management. They also have some key differences of which investors should be aware. Below is a summary comparison of key attributes of each structure.
| ETFs | Mutual Funds | |
| Pooled fund of securities offering diversification benefits | X | X |
| Professionally managed | X | X |
| Returns based on fund's underlying holdings | X | X |
| Intraday Trading | X | |
| Minimum Investment Size | X | |
| Sales Commissions (front-end or back-end loads) | X | |
| Trading Spread | X | |
| Brokerage Commission | X | |
| Transparency | Holdings disclosed daily | Holdings disclosed monthly, quarterly or semi-anually |
| Average net expense ratio2 | 0.34% | 0.34% |
ETF Investing
ETFs are versatile tools for investors, suitable for a wide range of investment goals. Being able to trade ETFs on exchanges like stocks gives investors flexibility to employ different trading strategies and offers a relatively quick way for investors to add diversification to their portfolio. Features such as daily transparency of holdings, simple fee structures, and tax efficient operations make ETFs historically a cost-effective and straightforward investment vehicle.
ETF issuers are continually introducing new strategies, from traditional index-tracking funds to innovative funds constructed around investment themes. As with any investment, investors should carefully evaluate an ETF to determine whether it fits well within their portfolio.
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1 Source: Morningstar. As of June 2025
2 Source: Morningstar. As of 12/31/2024
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included herein.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation
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IMPORTANT DISCLOSURES
1 Source: Morningstar. As of June 2025
2 Source: Morningstar. As of 12/31/2024
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included herein.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation
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