ETF, index-tracking fund and money market fund
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
How do you invest in an index? — An index is a measurement of a group of securities according to rules. It is not a security you buy directly.
Buying on the screen to understand the operation — A buy order is a request to execute a trade. Sending an order is not always the same as executing a trade.