An Exchange Traded Fund or ETF superficially resembles index mutual funds but with some important differences:
1. ETF’s are traded throughout the day just like regular stock.
2. NAV or Net Asset Value is known. The value of an ETF can be calculated throughout the day because the underlying index doesn’t change.
3. Arbitrage. ETF’s are not traded at systematic premiums or discounts since financial institutions can exchange ETF’s for the underlying assets.
4.Tax Advantages. Very few ETF’s distribute capital gains.
|Book: Getting Started with Exchange Traded Funds|