What are exchange-traded funds (ETFs)?

Exchange-traded funds (ETFs) are investment funds designed to be traded on stock exchanges, similar to individual stocks. They typically aim to replicate the performance of a specific index, such as the S&P 500, making ETFs a popular choice for investors seeking diversification and exposure to a broad market segment without needing to purchase each constituent stock individually.

One of the main advantages of ETFs is their liquidity, allowing investors to buy and sell shares throughout the trading day at market prices. This structure combines the benefits of mutual funds, which provide diversification and professional management, with the trading flexibility of stocks. Because of this, they have become a favored investment vehicle for both individual and institutional investors.

In contrast, investment funds that are not traded until maturity refer to products such as bonds or certain mutual funds that have a fixed term. Fixed-income securities issued by companies are typically bonds, which are distinct from ETFs. Real estate investment trusts (REITs) are specific types of investment vehicles focused on real estate assets and are a separate category from ETFs, even though they can be traded on stock exchanges. Thus, focusing on the characteristics of ETFs as outlined helps clarify why the selected answer accurately depicts their nature.