I'm not claiming all ETFs are passive by definition, or without risk.
ETFs do have additional liquidity risk that mutual funds lack. If liquidity is lacking, it could lead to the bid falling below NAV, potentially quite significantly, and investors who chose to sell at that point in time would be losing additional money.
Mutual fund sales are processed at NAV at the end of the market day when the sale takes place, which ensures you will receive the NAV when you sell.
ETFs allow more flexibility, with the drawback of possibly trading below NAV or above NAV, which can be good or bad depending on if you are buying or selling.
If the price of the ETF falls too far below NAV, big traders will scoop up the ETF shares to redeem for the discounted underlying stocks as an arbitrage play, bringing the ETF's price closer to the NAV.
ETFs do have additional liquidity risk that mutual funds lack. If liquidity is lacking, it could lead to the bid falling below NAV, potentially quite significantly, and investors who chose to sell at that point in time would be losing additional money.
Mutual fund sales are processed at NAV at the end of the market day when the sale takes place, which ensures you will receive the NAV when you sell.
ETFs allow more flexibility, with the drawback of possibly trading below NAV or above NAV, which can be good or bad depending on if you are buying or selling.
If the price of the ETF falls too far below NAV, big traders will scoop up the ETF shares to redeem for the discounted underlying stocks as an arbitrage play, bringing the ETF's price closer to the NAV.