Some things sound more complicated than what they really are. Many professions use language which is alien to normal people and this especially true in the finance sector. Exchanged traded funds, or ETFs, fall in to that category and in this Insight we will explain what ETFs are and how they work.
A managed fund is simply a fund that is managed by an investment professional. The manager solicits funds from investors and then invests those funds according to the investment mandate. The fund is usually a unit trust structure where units can be applied for and redeemed directly with the manager. In a recent innovation this can now be done on the ASX through its mFund platform.
ETFs are very similar. They are a professionally managed funds but units can be bought and sold on the ASX like ordinary shares. The fees charged by ETFs are typically lower than a regular managed fund making them easier and cheaper to invest in. The settlement time is also much shorter than a traditional fund which can take 3 or 4 weeks to redeem units or in some cases after the end of the month.