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Part: 4 Your Choice: Alternatives to Mut... > Comparing ETFs and Mutual Funds

Chapter 22. Comparing ETFs and Mutual Funds

ETFs combine the features of an index mutual fund with the advantages of trading individual stocks, at a very low cost. ETFs are similar to mutual funds, or at least index mutual funds. They represent a sector, style, or a way to invest internationally.[1]

[1] There is an exception to the linking of ETFs to various indexes and sectors. Merrill Lynch offers HOLDRs, which is a group of selected stocks focusing on a concept or industry, such as biotech. Most HOLDRs are based on a group of 20 stocks, and the original selection of stocks does not change. They are not subject to diversification rules. These funds must be purchased in 100-share increments.

ETFs are being touted as providing three advantages when compared to mutual funds: Tradability, tax efficiency, and lower costs.


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