What is an ETF?
Quick answer
An ETF (Exchange Traded Fund) is a fund that holds a basket of assets, like shares, bonds, or commodities, and trades on the stock exchange just like a single share. This is the short, quick-reference version, for the full walkthrough see our guides below.
How an ETF works
An ETF is a pooled investment. The ETF provider owns the underlying shares or other assets, and when you buy a unit, you own a small slice of that basket. Most ETFs simply track an index, like the ASX 200 or the S&P 500, rather than trying to beat it. You buy and sell units through a brokerage account, the same account you'd use to buy any ASX-listed share, using the fund's ASX ticker code, and trades settle within two business days (T+2).
Behind the scenes, a creation and redemption mechanism keeps the market price close to the fund's Net Asset Value (NAV). You can usually find the live, indicative NAV, called iNAV, on your broker's platform by adding a "Y" prefix to the ticker, for example YVAS for the ETF VAS. Moneysmart's tip worth remembering: trade at least 30 minutes after the market opens, prices tend to be more reliable once the first burst of opening activity settles down.
ETF vs index fund vs individual shares
An ETF isn't automatically the same thing as a traditional unlisted index fund, and it isn't a replacement for buying individual shares either, they're different tools:
| ETF | Traditional unlisted index fund | |
|---|---|---|
| How you buy | On the ASX, through a broker | Directly from the fund manager |
| Pricing | Live market price, all trading day | Once a day, at NAV |
| Costs | Brokerage charged per trade | No brokerage, but may have a minimum investment |
| Access | Any brokerage account | Through the fund manager's own platform |
This page is a quick reference. For the full comparison, including how they're regulated differently and a tax quirk that only affects unlisted funds, see our guide to index funds vs ETFs.
An ETF also differs from buying individual shares directly. One ETF trade spreads your money across dozens or hundreds of companies at once, removing the risk of any single company having a bad quarter or collapsing. Buying individual shares gives you concentrated exposure to one company instead. Neither is universally better, it depends on your goals, how much research you want to do, and how much time you have. For the fuller picture of what an ETF actually is and how it works, see our beginner's guide to ETFs.
Common ETF types
| Category | Examples |
|---|---|
| Australian broad market | A200, VAS (track the ASX 200/300) |
| International broad market | VGS, IVV (global developed markets, S&P 500) |
| Sector-specific | VHY (high dividend), HACK (cybersecurity) |
| Bond / fixed income | VAF, IAF |
| Commodity | GOLD, QAU |
These are examples to illustrate the categories, not a recommendation to buy any of them. Always read the Product Disclosure Statement before investing in any ETF.
What an ETF actually costs
Management fee (MER): deducted daily from the fund itself, not billed to you separately. Passive ASX 200 ETFs are often priced around 0.04% to 0.07% a year, usually cheaper than an equivalent actively managed fund. Brokerage: paid per trade to your broker, not the ETF provider, typically a flat fee of $5 to $10 or a small percentage of the trade value with low-cost brokers. Bid-ask spread: the gap between the buy and sell price on the exchange. It's usually tight for heavily traded ETFs like VAS or VGS, and wider for thinly traded ETFs or during volatile conditions.
Three common misconceptions
- Not every ETF tracks an index. Active ETFs exist and are a growing part of the ASX, run by a fund manager trying to beat the market rather than mirror it. ASX rules require these to include "Active" in the name.
- Diversification doesn't make an ETF risk-free. Spreading across dozens or hundreds of companies reduces single-stock risk, but not market-wide risk, the March 2020 crash dragged even broadly diversified ETFs down with it. There's no capital guarantee and no deposit protection.
- You don't need a lot of money to start. Most popular Australian ETFs like VAS or A200 cost somewhere between $50 and $150 per unit, plus brokerage. Some brokers also offer fractional investing, letting you start with even less.
What Is an ETF? A Beginner's Guide
The full walkthrough: how ETFs work, the Australian market, fees, tax and risks.
Index Funds vs ETFs: What's Actually the Difference?
The deeper comparison between an ETF and a traditional unlisted index fund.
Frequently asked questions
Is an ETF the same as a managed fund?
They're similar in that both pool money from many investors into one fund. But an ETF trades on the stock exchange like a share, with a price that moves throughout the day, while a traditional managed fund is bought and sold directly from the fund manager, priced once daily at end-of-day NAV.
Do ETFs pay dividends?
Most ETFs that hold shares distribute the income those companies pay out. It's technically called a distribution rather than a dividend, and it typically lands quarterly or twice a year, depending on the fund.
Are ETFs safe?
ETFs carry market risk, their value rises and falls with whatever they hold. They're regulated and listed on the ASX under ASIC oversight, but that's not the same as a guarantee. Unlike a bank deposit, your capital isn't protected, and you can lose money.
How do I buy an ETF in Australia?
Open a brokerage account, search for the ETF's ASX ticker code, and place a buy order the same way you'd buy a share. Settlement takes two business days (T+2).
What's the difference between an ETF and an LIC (Listed Investment Company)?
Both trade on the ASX, but an LIC is closed-ended with a fixed number of shares on issue, so its price can trade at a premium or discount to the value of what it actually holds. ETFs are open-ended, units are continuously created and redeemed to keep the market price close to net asset value.
Related terms
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Disclaimer
This page is general information only, not financial or investment advice. It doesn't take your personal circumstances into account, and the ETFs and tickers mentioned are examples only, not recommendations to buy. Always read the Product Disclosure Statement before investing, and consider speaking with a licensed financial adviser.