ETF, index-tracking fund and money market fund
What you will learn
Compare two funds by asset type, trading method and liquidity — before looking at return.
A fund pools investors’ money and invests according to a policy. “Tracking” describes the method; “ETF” also describes the way it is traded.
ETF units trade on an exchange during the trading day, at a price influenced by supply and demand and which can deviate from the fund’s net asset value per unit. In an open-ended mutual fund that is not traded continuously, purchase and redemption orders are executed according to the fund’s pricing dates and rules, not like a share every second. A money market fund is a type of mutual fund for short-term assets, and is not a share or a guaranteed deposit. An ETF abroad can be passive (tracking) or actively managed. Funds in different countries have different rules.
The fund name is not enough: a bond fund, a money market fund and an equity fund can be very different in risk. Even if they are all called “fund”, check what they invest in and how units are redeemed.
Compare two funds by asset type, trading method and liquidity — before looking at return.
Investor.gov · Mutual Funds and ETFs ↗Check your understanding
What is true about an ETF?
- The price is guaranteed all day
- Units trade on the exchange during trading
- You cannot lose money in it
Answer and explanation
Units trade on the exchange during trading. The trading price varies and is not necessarily equal to the net asset value per unit.
A money market fund and an equity fund are…
- The same product with a different name
- Funds with different assets and risks
- Guaranteed deposits
Answer and explanation
Funds with different assets and risks. The investment policy determines the fund’s exposures. Do not infer from the word “fund” alone.
Continue learning
Stock: a small piece of a company — A stock is a share of ownership in a company.
Why do prices change? — A market price is formed at the meeting point between buyers and sellers.
Risk: understanding what you can lose — Risk is the possibility that the outcome will be different from expected, including loss.