What is the key difference between a mutual fund and an ETF?

ETFs are actively managed, while mutual funds are passively managed. Mutual funds trade on stock exchanges, while ETFs do not. ETFs can be bought and sold throughout the day, while mutual funds are priced at the end of the day. Mutual funds invest in a wider range of assets compared to ETFs.

What is iNAV in the context of ETFs?

The net asset value calculated at the end of the trading day. The initial offering price of the ETF. A real-time indication of the ETF's net asset value. The average price of the ETF over the last 30 days.

What is the role of market makers in the ETF ecosystem?

To determine the expense ratio of the ETF. To select the underlying securities for the ETF. To provide liquidity and arbitrage premiums/discounts. To manage the ETF's marketing and distribution.

Which of the following is NOT a factor to consider when evaluating the liquidity of an ETF?

The ETF's total assets under management (AUM). The average daily trading volume of the ETF. The expense ratio of the ETF. The liquidity of the underlying securities held by the ETF.

Why is it recommended to use limit orders when buying or selling ETFs?

To avoid paying brokerage fees. To ensure the order is executed at the desired price. To increase the speed of order execution. To support the ETF's market makers.

What is a creation unit in the context of ETFs?

The minimum number of ETF units that can be purchased on a stock exchange. A representative basket of securities held by the ETF, purchased directly from the AMC. The daily volume of ETF units traded on the stock exchange. The number of ETF units held by the ETF's market maker.

What is tracking error in the context of ETFs?

The difference between the ETF's expense ratio and the average expense ratio of its peers. The annualized standard deviation of the difference between the ETF's returns and the returns of its benchmark index. The number of days the ETF trades at a premium or discount to its NAV. The percentage of the ETF's portfolio that is not invested in the underlying index.

According to the text, why are index funds and ETFs becoming increasingly popular?

They offer higher returns compared to actively managed funds. They are less volatile compared to actively managed funds. They have lower expense ratios compared to actively managed funds. They provide exposure to a wider range of asset classes compared to actively managed funds.

What is the main advantage of ETFs over index funds, as highlighted in the text?

ETFs have lower expense ratios compared to index funds. ETFs offer greater flexibility for tactical strategies. ETFs are less risky compared to index funds. ETFs are more tax-efficient compared to index funds.