An ETF, or exchange-traded fund, is a type of investment security that combines aspects of stocks and mutual funds. ETFs, like stocks, trade on an exchange intraday. Many ETFs, like mutual funds, seek to replicate the performance of a benchmark index, such as the S&P 500.
When you purchase an ETF, you are purchasing a basket of securities packaged into a single investment that trades on an exchange. Most ETFs track an underlying index, which represents other securities or asset types such as stocks, bonds, commodities, or currencies.
ETF shareholders do not own shares of the underlying securities or assets; rather, they own shares of the ETF itself. Furthermore, while ETFs trade on stock exchanges like stocks, the process of creating and redeeming shares is unique in the investment world.