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What is an ETF (Exchange Traded Fund)?

Aktualisiert: 24. Aug. 2023


An ETF (Exchange Traded Fund) is a type of mutual fund. ETFs usually consist of a collection of securities, such as stocks or bonds, that track a specific index.


The main difference to other funds is that ETFs can be bought and sold on the stock exchange in a similar way to shares. Another important difference to classic funds is that ETFs are not actively managed by a fund manager. So there is no human being sitting behind and actively making the selection in which stocks to invest.


This is why ETFs are often referred to as "passive funds."


For example, if you buy an ETF on the MSCI World Index, you indirectly hold shares in all companies that are part of this index. Therefore, with an ETF you can invest broadly in the stock market without buying each share individually that is included in the index.


An additional significant advantage of ETFs is that they have a lower risk than individual stocks, as they are broadly diversified. Thus, it is unlikely that you will lose your entire invested capital with an investment in the MSCI World ETF. For this to happen, all of the approximately 1600 companies included in the index would have to file for bankruptcy at the same time.


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