Exchange Traded Funds
There are a wide variety of exchange traded funds (ETFs), but most track a specific index, such as the S&P 500® Index. On the surface, an ETF looks like a conventional mutual fund in that both represent an investment in a collection of securities. The primary difference is how they are bought and sold:
- A mutual fund's net asset value (NAV), or the price of a single share, is calculated once per day after market close. All trades are based on the day's NAV.
- ETFs are securities that are traded throughout the day on an exchange, like individual stocks. Generally, an ETF's price is the market value of the underlying securities at the time of trade.
Ready to Start?
You can buy and sell ETFs with an American Century® Brokerage account.
Benefits of Exchange Traded Funds
No Minimum Investment Required
Similar to individual stocks, ETFs are traded at prices set by market demand, typically close to the net asset value of the underlying securities.
Fees Are Generally Lower
Fees tend to be lower than an equivalent mutual fund, with expense ratios typically ranging from 0.09% to 0.99%. Keep in mind that brokerage commissions are charged for ETF trades and are generally the same rates as equity trades.
You can buy or sell ETFs throughout the trading day at the current price, which changes throughout the day.
Leveraged and Inverse ETFs Are No Longer Marginable
An alert about Leveraged and Inverse ETFs has been issued by the Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Further, following FINRA Regulatory Notice 09-31, American Century Brokerage has set the margin requirements for these securities at 100%, meaning that leveraged and inverse ETFs are no longer marginable.
As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. It is possible to lose money by investing in an ETF.
For detailed descriptions of indices or investing terms referenced above, refer to our glossary.
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