Exchange traded funds, like mutual funds, offer investors an opportunity to hold a basket of securities in one single investment. ETFs, though, offer added benefits such as diversification, transparency, intraday trading and lower costs.

The only downside to index-based ETFs is that they offer no downside protection since they passively follow the underlying benchmark in both up and down markets, writes Blythe McGarvie, former BIC Group CFO, for Business Finance. [What are ETFs?]

There are currently more than 1,300 exchange traded funds and notes in the U.S. markets, with more being added. The ETF industry represents about 10% of the $11 trillion fund market. [What is an ETF? – Know What Your Fund Holds]

BlackRock’s iShares leads the industry with $476 billion in assets under management, followed by State Street Global Advisors with $259 billion and Vanguard with $175 billion.

“By owning an ETF, you can achieve diversification of an index fund and have the ability to sell short or buy on margin. You can also trade it all day long rather than at the end of the day for mutual funds,” McGarvie writes.

For more information on ETFs, visit our ETF 101 category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.