Exchange Traded Funds (ETFs) refer to a basket of securities that include every possible asset class. ETFs can be stocks, commodities, bonds, and cryptocurrencies. Each ETF is traded like a single stock on an exchange.
ETFs are very similar to mutual funds as both allow investors to invest in a variety of asset classes. ETFs can also help investors in diversifying their portfolios while mitigating the risks for the long term.
ETF functions by generally tracking the performance of a single index, like the S&P 500 index. The most advantageous factor about ETFs is that they are associated with low cost, especially when they are passively managed i.e. when it tracks the underlying index.
ETFs can also be managed actively, i.e when the portfolio manager makes investment decisions instead of simply tracking the underlying index. The capital gain tax on ETF is charged when an ETF is sold, but in mutual funds, capital gain tax is charged in both buying and selling.