ETF (Exchange-Traded Fund)
What is an ETF?
An ETF (Exchange-Traded Fund) is a bundle of investments that you buy as a single unit. Most ETFs hold shares in hundreds of companies. You buy one ETF, you own a small piece of each of those companies.
Why use an ETF?
Buying shares in 500 companies one by one would take ages and cost a fortune in trading fees (charges for each purchase). An ETF does it in one purchase.
It also spreads your risk. If one company fails, the rest keep you afloat.
How do you buy an ETF?
Through an investment platform (a company that holds your investments), inside an ISA or GIA. You buy ETFs the same way you buy shares. Pick one, enter an amount, click buy.
How much does an ETF cost?
ETFs charge a yearly fee called an OCF (Ongoing Charges Figure). A typical fee is 0.10% to 0.20%. That’s £1 to £2 a year for every £1,000 you invest.
ETF vs index fund
They often do the same job. The difference is how you buy them. ETFs trade like shares with prices changing throughout the day. Index funds (when structured as OEICs) have one price per day and are easier to set up for monthly investing.
Most people won’t notice a difference.
Scrimpr’s ISA comparison covers more platforms than any other UK guide.
Compare ISA Platforms →Key points about ETFs
- Invest in hundreds of companies with one purchase
- Yearly fees are usually low. Many charge under 0.20%
- Buy and sell anytime the market is open