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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.
Exchange-traded funds are always cheaper to buy than mutual funds.
False. If you trade frequently, ETFs will likely be more expensive than mutual funds, due to the commissions.
3.
In general, exchange-traded funds are cheaper to buy than index mutual funds if you want to trade regularly.
False. Because of their commissions, regular trading will likely cost you more with exchange-traded funds.
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.
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.
