Common ETF Terms: A Beginner's Glossary

Investing in ETFs comes with its own language, and it can feel like a wall of jargon when you’re just starting out. Here’s a comprehensive rundown of the terms you’re most likely to run into, broken down into plain English.

The Basics

ETF (Exchange Traded Fund) An investment fund that holds a basket of assets (like shares) and trades on a stock exchange, just like an individual share.
Index A list of companies grouped together to measure the performance of a market, sector, or theme. The S&P/ASX 200 is an example, tracking Australia’s 200 largest listed companies.
Benchmark The index (or combination of indices) that an ETF or fund is measured against to see how well it’s performing.
Ticker (or Code) The short combination of letters used to identify an ETF or share on the exchange, for example VAS or IVV.
Issuer (Fund Manager) The company that creates and manages the ETF, such as Vanguard, BetaShares or iShares.

Costs

MER (Management Expense Ratio) The annual fee charged by the fund manager to run the ETF, expressed as a percentage of your investment. A 0.10% MER means you’re paying $10 a year for every $10,000 invested.
Brokerage The fee your broker charges you each time you buy or sell.
Bid-Ask Spread The gap between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask). A smaller spread generally means the ETF is easier and cheaper to trade.
Tracking Error The difference between an ETF’s actual performance and the performance of the index it’s meant to track. A well run ETF should have a very small tracking error.

Trading and Liquidity

NAV (Net Asset Value) The total value of everything an ETF holds, divided by the number of units on issue. This is essentially the “true” value of one unit of the ETF.
iNAV (Indicative Net Asset Value) An estimate of the NAV that updates throughout the trading day, used to help keep the ETF’s market price in line with its actual underlying value.
Premium or Discount to NAV When an ETF trades slightly above its NAV, it’s trading at a premium. Slightly below, it’s trading at a discount. For well established, liquid ETFs, this gap is usually tiny.
Liquidity How easily an ETF can be bought or sold without significantly affecting its price. Highly liquid ETFs (like VAS) can be traded in large volumes without much price movement.
Market Maker A firm responsible for continuously providing buy and sell prices for an ETF, helping to keep the market liquid and the price in line with the underlying assets.
AUM (Assets Under Management) The total dollar value of everything a fund manages across a particular ETF. A higher AUM generally suggests more investor confidence and often better liquidity.
Minimum Marketable Parcel (MMP) The ASX rule requiring your first purchase of any share or ETF to be worth at least $500.
CHESS Sponsored A share ownership structure where your shares are held directly in your name on the ASX’s official settlement system, and you’re issued your own HIN.
HIN (Holder Identification Number) Your unique reference number for shares held under a CHESS sponsored broker, confirming you directly own the shares.
Custodial Model A structure where your broker holds shares on your behalf in a pooled account, rather than directly in your own name.

Income and Distributions

Distribution The regular payment ETF investors receive, made up of income the fund has collected from the underlying companies (dividends, interest, etc), usually paid quarterly.
Dividend A payment made by an individual company to its shareholders out of its profits. Distributions are essentially a bundle of dividends (and other income) passed on by an ETF.
DRP (Dividend Reinvestment Plan) An option that automatically uses your distribution to buy more units of the ETF instead of paying it out as cash.
Distribution Yield The annual distribution paid by an ETF, expressed as a percentage of its unit price.

Franking Credit A tax credit attached to dividends paid by Australian companies, representing tax the company has already paid. These get passed through to you via ETF distributions.
Ex-Distribution Date The date from which a new buyer of the ETF will no longer be entitled to the upcoming distribution.
Record Date The date used to determine exactly who is eligible to receive the upcoming distribution.
Payment Date The date the distribution actually lands in your account.

Structure and Strategy

Currency Hedged An ETF structure that reduces the impact of currency fluctuations between the Australian dollar and foreign currencies.
Currency Unhedged An ETF where your returns are directly affected by movements in currency exchange rates, on top of the performance of the underlying assets.
Domicile The country or jurisdiction in which an ETF is legally structured and regulated.
Rebalancing The periodic process fund managers use to adjust an ETF’s holdings so they continue to accurately reflect the index being tracked.
Diversification Spreading your investment across many different assets to reduce the risk of any single one significantly hurting your overall portfolio.
All-in-One ETF A single ETF that already contains a diversified mix of asset classes or regions (for example, Australian shares, international shares, and sometimes bonds) in one product.
Sector or Thematic ETF An ETF focused on a specific industry (like technology or healthcare) or investment theme (like cybersecurity or clean energy), rather than the broad market.

Summary

You don’t need to memorise all of these overnight. Bookmark this page and come back to it whenever you hit a term you don’t recognise while researching your next ETF. Understanding the language is a big part of feeling confident enough to actually get started.