Definition
A fund that trades on an exchange like a stock. Most popular ETFs are index funds in ETF form: broad, cheap, and tax-efficient.
Why it matters
ETFs made cheap diversification available in any brokerage account with no minimums. For taxable accounts they are usually the most tax-efficient wrapper for the same index.
Example
Instead of a mutual fund with a minimum investment, a new investor buys one share of a total-market ETF for the price of a share, owning a slice of thousands of companies with an expense ratio of a few hundredths of a percent.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.