An Exchange Traded Fund (ETF) is an investment fund that holds a collection of assets, such as shares or bonds, and is traded on a stock exchange just like an individual company share.

Many ETFs track an index, such as the FTSE 100 or the S&P 500, making them a simple and low-cost way to invest in hundreds or even thousands of companies with a single purchase.

The biggest difference is how you buy and sell it.

An ETF can be bought or sold at any time during the trading day, with its price changing throughout the day as markets move. This means you'll know the price you're paying before you place your order.

A traditional investment fund (often called a mutual fund or OEIC) is different. Orders are collected throughout the day and all investors buy or sell at a single price, usually calculated once each day after the market closes.

For most long-term investors, there is very little difference. Many ETFs and traditional index funds track exactly the same market and can deliver almost identical returns.

ETFs often have:

• Lower ongoing charges.
• Real-time trading throughout the day.
• Prices that change as the market moves.

Traditional funds often offer:

• Simplicity, with no need to think about market prices.
• Easy regular monthly investing.
• Automatic investment of every penny, without leaving small amounts of cash uninvested.

For most people, either can be an excellent choice. The most important factors are keeping your costs low, investing regularly and staying invested for the long term.

Key takeaway: An ETF is simply a fund that trades on the stock market. While it offers live pricing and instant trading, the differences are usually small for long-term investors, so choosing a low-cost, diversified investment is far more important than whether it is an ETF or a traditional fund.