Which one of the following statements about Exchange-Traded Fund (ETF)

Which one of the following statements about Exchange-Traded Fund (ETF) is not correct?

It is a marketable security.

It experiences price changes throughout the day.

It typically has lower daily liquidity and higher fees than mutual fund shares.

An ETF does not have its net asset value calculated once at the end of every day.

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CDS-1 – 2018

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The correct answer is C) It typically has lower daily liquidity and higher fees than mutual fund shares.

Exchange-Traded Funds (ETFs) are designed to be highly liquid and are known for their low expense ratios (fees) compared to many traditional mutual funds, especially actively managed ones. ETFs trade on stock exchanges throughout the day, providing intra-day liquidity, unlike mutual funds whose trades are settled only once per day at the Net Asset Value (NAV). Therefore, the statement that ETFs typically have lower daily liquidity and higher fees than mutual fund shares is incorrect.

Statements A, B, and D are generally correct descriptions of ETFs. A) ETFs are indeed marketable securities traded on exchanges. B) Their price fluctuates throughout the trading day based on market supply and demand, similar to stocks. D) While the market price changes continuously, the official NAV of the underlying portfolio is calculated at the end of the trading day, but the ETF’s traded price can diverge from its NAV due to market forces.

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