DEFINITION of 'Exchange-Traded Mutual Funds'
An exchange-traded mutual fund, is an exchange-traded security that is a hybrid between an exchange-traded fund (ETF) and an actively managed open-ended mutual fund. It allows a standard net asset value (NAV)-based mutual fund to trade in real-time on a stock exchange, similar to the trading of a stock or ETF.
Exchange-traded mutual fund intraday trading prices will be directly linked to the fund’s next end-of-day NAV. All bids, offers, and trade prices will be quoted in terms of premium or discount to the end-of-day NAV (like NAV+$0.02, or NAV-$0.05). For each trade, the premium or discount to NAV is locked-in at trade execution time, and the final transaction price is determined once NAV is calculated at the end of the day.
BREAKING DOWN 'Exchange-Traded Mutual Funds'
Essentially, an exchange-traded mutual fund is a mutual fund available in the guise of an ETF.
Exchange-traded mutual funds offer the benefits of both mutual funds and ETFs. They combine the advantages of investment strategies of an actively managed mutual fund and the performance and tax efficiencies of an ETF.
Exchange-traded mutual funds differ from a traditional ETF, as they are not required to disclose their portfolio holdings on a daily basis, enabling them to protect confidential portfolio trading details. Exchange-traded mutual funds differ from a traditional mutual fund as they trade in real time using NAV-based trading.
Exchange-traded mutual funds will utilize “in-kind” transfers of portfolio securities in redeeming and issuing fund units, thereby saving on transaction costs.