What are exchange traded funds (ETFs)?

Exchange-traded funds (ETF) are increasingly popular with investors, but what are ETFs and how do they work?

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Exchange-traded funds (ETF) are investment funds that are bought and sold on a stock exchange in the same way you trade normal shares. Unlike investment trusts, which are also traded on exchanges, ETFs are mostly passive investments usually structured to mirror a particular segment of the market, often indices, with the aim to track the performance of that market, rather than to try to beat it as an active fund does. 

ETFs are available on a wide range of indices, sectors, investment themes and commodities. They are often used by investors to diversify their portfolio to gain exposure to various geographies and sectors. There are dividend-paying ETFs, gold ETFs and a pet care ETF. You may also be interested in our article looking at three exchange-traded funds that investors could benefit from investing in.

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Katie Binns

Katie is deputy editor of Times Money Mentor and long-time contributor to the Sunday Times where she started on the Irish desk in 2012 and spent 10 years covering news, culture, travel, personal finance and celebrity interviews. 

Her investigative work on financial abuse has examined the response of banks, the Financial Ombudsman and the child maintenance service to victims, and resulted in a number of debt and mortgage prisoners being set free - and a nomination for Best Finance Story of the Year at the Headline Money awards in 2021 and 2022. 

Katie was also shortlisted for Freelance Journalist of the Year at the Headline Money awards in 2022, 2023 and 2024 and won Personal Finance Journalist of the Year at The British Bank Awards 2022.