What are exchange-traded funds (ETFs)?

Exchange-traded funds (ETFs) are designed to track specific indices, commodities, or a basket of assets and trade on stock exchanges, allowing for real-time buying and selling throughout the trading day like individual stocks. This structure gives investors the flexibility to enter and exit positions quickly, typically at market prices that reflect the current value of the underlying assets. Investors benefit from the diversification they provide, as ETFs often hold a variety of securities within a single fund, thereby reducing individual stock risk. They are generally seen as a cost-effective investment vehicle due to lower expense ratios compared to mutual funds.

The other options describe different financial instruments or concepts. For instance, the first choice refers to mutual funds, which are only traded at the end of the trading day. The third choice suggests integrated financial planning tools, which are not related to the trading characteristics of ETFs. Lastly, the fourth choice pertains to loans issued by banks, which is outside the scope of investment funds like ETFs. Thus, the option asserting that ETFs are marketable securities that track indices and trade on exchanges accurately captures their defining characteristics.