Exchange traded funds (ETFs) are investment vehicles that track an index or basket of assets like stocks or commodities. ETFs trade on stock exchanges similar to stocks. They allow investors indirect ownership in the underlying assets by purchasing shares in the ETF. ETFs track indexes closely and provide opportunities for diversified, low-cost exposure to markets or sectors similar to index mutual funds but with intraday tradability like stocks. While ETFs and mutual funds have similarities, ETFs trade continuously at market prices close to the net asset value of their holdings, unlike closed-end mutual funds which may trade at premiums or discounts to net asset value.

3. By tracking an index, we mean the fund managers attempt to track the performance of the index itself. The value of the investment thus will go up and down in line with the index which it is matching.

5. You can make investments in an ETF by buying shares of that particular ETF, which gives you an opportunity to make an ‘indirect’ investment in the basket of stocks or commodities constituting that particular ETF.