What are ETFs

What are ETFs

ETFs are index tracking funds that are traded on an exchange such as the London Stock Exchange. They combine the ready-made diversification of unit trusts with the simplicity of shares. They are eligible for ISAs but attract no stamp duty, ETFs have some of the lowest annual charges of all collective investment schemes. First introduced in 2000, there are now a number of ETFs available, tracking equity and fixed income indices in the UK and around the world.
In 2006 the London Stock Exchange became the world’s first exchange to offer a multi-currency trading service for ETFs giving investors a tax-efficient and currency risk-free alternative to buying ETFs in the US markets.
A summary of how ETFs compare to similar products:


Unit Trust

Investment Trust


Open-ended. Price directly linked to NAV

Open-ended. Price directly linked to NAV

Closed-ended. Price indirectly linked to NAV and driven my market


Anytime during market hours at real-time prices

Once a day on unknown future prices

Anytime during market hours


Through a broker

From Fund Manager, Supermarket or IFA

Through a broker

Unit/Shares price

Close to NAV (minimal tracking error)

At NAV (once in 24 hours)

At discount or premium

Investment style


Active or Tracker

Active (small no. of tracker)

Stamp duty (on purchase)




Initial charges

0 + broker's fee

Up to 1% & broker’s fee (if through broker)

Typically 0 + broker’s fee

Annual charges

0.20 - 0.75%

Up to 1.75%

Typically around 1%





With ETFs the fees are minimal, and trading is much more convenient. You don’t have to write off a whole load of forms, you can buy and sell within a day.
Justin Urquhart-Stewart, 7 Investment Management.