What is an ETF?
| Feature | Mutual Fund | ETF |
| Investor purchase/ redemption of shares | Investor contributes cash directly to fund for fund shares, and vice versa for redemptions | Investor buys and sells shares on a secondary market (i.e., not directly from fund). Only market maker or "authorized participants" trade directly with the fund, typically in blocks of 50k - 100k shares. Unlike mutual funds, investors are subject to commission charges for each buy and sell trade executed for an ETF. |
| Fund's investment of new proceeds or meeting requests for redemptions | The fund buys securities to put new cash to work, or sells portfolio securities to meet redemption requests | ETF typically exchanges ETF shares "in-kind" with market makers in return for portfolio securities, and vice versa for redemption requests. This largely avoids the need for the ETF to buy and sell securities directly. |
| Intraday requests to buy and sell shares | Orders are executed at the end of the trading day's NAV, directly with the fund | Investors can trade at negotiated prices (with market maker support/ intervention) on the open market intraday |
| Shorting, buying on margin | Can not short or buy on margin | Shorting and buying on margin allowed |
| Recordkeeping | Daily share pricing, with ability, in some cases, to track underlying shareholders through transfer agent function | Continuous pricing fluctuation. Shares held in the brokerage account. |
ETFs are subject to risk similar to those of stocks including those regarding short-selling and margin account maintenance.
Unlike mutual funds, investors are subject to commission charges for each buy and sell trade executed for an ETF.