An exchange traded fund (ETF) is an investment fund, units of which can be bought and sold on a stock exchange. They are usually used by tracker funds.

The key difference between ETFs and unit trusts is that they are tradeable on an exchange, which means that the bid-offer spread is usually much smaller (because it is set by the market rather than the fund manager).

However, unlike single priced OEICS, ETFs do have a bid-offer spread. Like OEICS and unit trusts, and, unlike investment trusts, ETFs are open-ended (money can be added to or withdraw from the fund). This means that ETFs will trade at close to their NAV, investment trusts often do not.

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