Funds Beginner: Introduction to Exchange-Traded Funds

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1.
In what form do investors buy or redeem shares from an exchange-traded fund?
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In blocks of a certain number. The blocks are typically in groups of 50,000 shares.
2.
Exchange-traded funds are a type of mutual fund.
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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.
3.
Compared to mutual funds, exchange-traded funds are ______ to make capital-gains distributions.
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Less likely. However, at times they must, in order to adjust for changes to their underlying indexes.
4.
Exchange-traded funds are always cheaper to buy than mutual funds.
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False. If you trade frequently, ETFs will likely be more expensive than mutual funds, due to the commissions.
5.
Exchange-traded funds charge commissions.
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True. Unlike their competitors the no-load index funds, ETFs do charge commissions.