What’s the difference between an index fund and an ETF?


What’s the difference between an index fund and an ETF?

In: Economics

Exchange-traded Fund is the overall term for a fund that is … well, traded (bought and sold) on a market. It might track the health of an entire market, or specific sectors of a market (like “cybersecurity”, “travel and entertainment”, “real estate”, etc.), or trade commodities, or even have some other specific type of investment strategy (like “investing only in companies based out of Texas” or “investing in companies who promote equal employment opportunities for minority groups”).

An Index Fund is one of the first types listed there – it’s an ETF that specifically puts a little bit around the whole market, so that when the market as a whole does well, that fund does well; when the market as a whole does meh, that fund does meh. edit: There are also Index Funds that are mutual funds (not traded on the market).

An ETF (exchange traded fund) is one that has a ticker symbol and trades like a stock does. An ETF could have any sort of investment philisophy/goal.

An index fund is a mutual fund that’s investment strategy is to mirror a particular stock market index, like the S&P 500, by holding the shares in the proportion that they make up that index. This differs from other mutual funds which are actively managed, meaning there are manager who analyze stocks to invest in and amounts to hold based on their research.

So one is the means of buying/selling into the mutual fund, while the other is the investment strategy that the fund follows.