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ETFs 101: Exchange-Traded Funds

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1.
Exchange-traded funds charge commissions.
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True. Unlike their competitors the no-load index funds, ETFs do charge commissions.
2.
Which statement is false about exchange-traded funds?
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ETFs are always the cheaper choice for all investors. Although the annual expenses of ETFs are below those of mutual funds, you must pay a commission each time you buy an ETF. As a result, ETFs may not be cheaper choices for investors who invest a little bit at a time, or those who trade actively.
3.
Exchange-traded funds are a type of mutual fund.
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False. Exchange-traded funds are not mutual funds; they are baskets of securities that are traded on an exchange. They are actually part mutual fund, part stock.
4.
Compared to mutual funds, exchange-traded funds are ______ to make capital-gains distributions.
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Less likely. However, at times they must, in order to adjust for changes to their underlying indexes.
5.
In what form do investors buy or redeem shares from an exchange-traded fund?
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In blocks of a certain number. The blocks are typically in groups of 50,000 shares.