Could someone explain them to me?As simply as possible, preferably...

An ETF is traded on an exchange like a stock. They can be traded during market hours.It usually represents a basket of stocks in a certain sector, such as the RTH, which represents the retail industry. QQQQ is an etf which tracks the Nasdaq 100, & SPY an ETF which tracks the S&P 500. Many etf is r narrowly focused & do not necessarily represent a wide range of stocks.

Mutual funds r usually more diversified. They r usually priced only once a day. You can buy them through brokers or through the management companies. For instance, Vanguard is one of the largest of the mutual fund companies & u can buy their funds by mail through the company, as well as through many stock brokers, such as Schwab.

ETF is usually give u a greater ability to play narrow sectors of the market on both the long & short side. For instance UYG allows u to go long the financial sector, while SKF allows u to short the financial sector.

Personally I'd go with ETF is rather than mutual funds.

An ETF is a group of defined stocks. Stocks seldom change in the ETF & therefore requires very little management usually keeping trust fees very low. They may reflect an index (DIA reflects the dow & SPY reflects the S&P500) or can reflect a sector.

ETFs can be traded like stocks at any time of the day where mutual funds r only sold or bought at the end of the trading day.

Although a brokerage fee is charged to trade an ETF & many mutual funds do not charge a purchasing/redemption fee, a brokerage or mutual fund provider may charge high purchasing/redumption fees if u do not hold a mutual fund for at least a specified period of time.

A person owning mutual funds can get hit with capital gains that he never received after a big market drop like the recent one. This occurs when redemptions occur & the fund manager does not have available cash & must sell stocks in the funds that were purchased at a low price to raise capital to pay the people redeeming the fund. This does not occur with ETFs since they r traded instead of redeemed.

These 2 articles are a great source of information:

http://ezinearticles.com/?Why-Should-You-Invest-in-ETFs?&id=1334767
http://ezinearticles.com/?ETFs---An-Investment-Option-Of-The-Future&id=1158984

Hope it helps !

ETFs or Exchange Traded Funds r sometimes also known as non-managed or passive funds. Ie, the ETF is created against a specified index, be it a sectoral or market index, & the fund manager just purchases the components of the index as closely as possible to the ratios within the index. Such funds have an almost pure correlation to the tracking index. Being unmanaged, they r also cheaper in terms of management fees. They r also traded on the stock exchange where transaction fees r typically lower.

Mutual funds or unit trusts on the other hand, r often actively managed. Ie a fund manager or fund mgt team invests in a particular segment (be it country, region, industry, etc) & monitors & trades in order to achieve a given return. This sort of fund typically attracts a management fee & transaction costs, & r therefore relatively more expensive. They r also not traded on the stock exchange, so transaction costs (buying & selling the fund) can be higher.

So, is an active or passive fund better? The market is still out on this. Empirical statistics however show that less than 50% of actively managed funds beat their reference or tracking indexes over the long term.

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