Exchange Traded Funds
Exchange Traded Funds (ETFs) are an increasingly important type of mutual fund that differs in important ways from their better-known cousins: open end funds. Most investors purchase and sell ETFs on secondary markets such as the New York Stock Exchange rather than through the investment companies that sponsor the fund. ETFs are designed to trade at market prices that are quite close to their net asset values. This is accomplished through provisions that allow financial institutions to arbitrage any major differences between market prices and net asset values. ETFs may offer minor tax advantages relative to open-end funds as well as the added liquidity of being able to purchase or sell shares throughout each trading day rather than simply at the end of each trading day.