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1.
Exchange-traded funds are a type of mutual fund.
False. Exchange-traded funds are not mutual funds; they are baskets of securities that are traded on an exchange. They are actually part mutual fund, part stock.
2.
How do investors buy and sell most exchange-traded funds?
Through a broker. Because these shares trade on an exchange, investors have to go through a broker to buy and sell shares. Only the very wealthy can sell shares back to the sponsoring fund family. And when they do, they won't get cash back, but shares of the ETF's underlying holdings.
3.
If you are an active, frequent trader of exchange-traded funds, then your trading expenses will probably _______ those of mutual funds.
Exceed. Those who trade frequently will probably discover this. So if you plan to trade ETFs frequently, you should take note.
4.
Because their shares are sold to other investors rather than redeemed, exchange-traded funds do not need to buy and sell stocks.
False. ETFs do at times need to buy and sell stocks, but it is in order to adjust for changes to their underlying indexes.
5.
Exchange-traded funds charge commissions.
True. Unlike their competitors the no-load index funds, ETFs do charge commissions.
