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An ETF or Exchange Traded Funds is a collection or “basket” of tens, hundreds, or sometimes even thousands of stocks opens a layer closed or bonds in a single fund. If you’ve ever owned a mutual fund particularly an index fund, then owning an ETF will feel familiar because it has the same built-in diversification and low costs, but unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.
In other words an ETF or Exchange Traded Funds is a basket of stocks that reflects the composition of an Index, like Nifty 50. The ETFs trading value is based on the net asset value of the underlying stocks that it represents. ETF’s launched on NSE. Exchange Traded Funds are essentially Index Funds that are listed and traded on exchanges like individual stocks and are designed to track underlying Index.
Just like mutual funds, the way your ETF makes money depends on the type of investments it holds. The ETF itself is sort of like a trust fund – it may invest in stocks, bonds, commodities such as gold or silver, preferred stock, or a famous index.
Exchange Traded Funds (ETFs) pay out the full dividend that comes with the stocks held within the funds. To do this, most ETFs pay out dividends quarterly by holding all of the dividends paid by underlying stocks during the quarter and pays them to shareholders on a pro-rata basis.