The most common type of ETF holds a mixture of stock similar to a stock market index. In fact, ETFs are commonly identified by the type of index. For example, you may buy an ETF linked to an S&P500 index. Since ETFs follow a particular index, the fund manager typically doesn't have to do a lot of research or decision-making. Plus, since there isn't a lot of buying and selling of shares held by the ETF, as the fund only changes investments when the index changes, ETFs often cost less in fees than mutual funds.

As the investments held in the ETF do well, the price of your units goes up and you will make money if you sell those units. If the investments are not doing well, the unit price falls and you may lose money if you decide to sell your ETF units when the price is lower.
Some ETFs make distributions to investors when the ETF generates a lot of revenue. These are payments made to the investor. Some ETFs that invest in bonds pay interest each year.