‘In a survey of investment professionals conducted in March 2008, 67% called ETFs the most innovative investment vehicle of the last two decades and 60% reported that ETFs have fundamentally changed the way they construct investment portfolios.’

Wikipedia

Why Exchange Traded Funds (ETFs)?

ETFs are index funds traded on stock exchanges much like stocks and bonds. This investment vehicle trades at approximately the same price as the net asset value of its underlying assets. ETFs have the valuation feature of mutual funds but can be traded instantaneously all day long, unlike mutual funds which are only redeemed at the net asset value of the funds at the close of the trading day.[i][i]

Benefits

• ETFs are the most practical vehicle to invest in the stock market quickly and cheaply
• All major stock market indices have ETFs based on them
• Easy to maintain over the long-run, making them especially attractive for the typical buy-and-hold investor.
• Their safety as a securities instrument is considered the same as stock certificates themselves.
• ETFs have low costs as they are not actively managed and are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions.
• ETFs can be flexibly bought and sold at current market prices throughout the trading day. Also as publicly traded securities their shares can be purchased on margin and sold short, enabling the use of hedging strategies, and traded using stop orders and limit orders, allowing investors to specify the price points at which they are willing to trade.
• ETFs generally generate relatively low capital gains, as they typically have low turnover of their portfolio securities (an advantage they share with other index funds) making them as a tax efficient investment which is further enhanced as they do not have to sell securities to meet investor redemptions.
• They provide an economical way to rebalance portfolio allocations and to "equitize" cash by investing it quickly, whilst offering exposure to a diverse variety of markets, including broad-based indexes, broad-based international and country-specific indexes, industry sector-specific indexes, bond indexes, and commodities.
• All ETFs have transparent portfolios and are priced at frequent intervals throughout the trading day.