Buying a single share of any company is much riskier, as compared to buying the Exchange Traded Fund (ETF). Explain this statement, with reference to the understanding about ETF.

An Exchange Traded Fund (ETF) is a security that tracks an index, commodity, bonds, or a basket of assets like an index fund and is traded in the securities market. In simple words, ETFs are funds that track indexes such as Sensex, Nifty, etc. When any investor buys shares/units of an ETF, he buys shares/units of a portfolio that tracks the performance of the index. ETFs just reflect the performance of the index they track. Unlike regular mutual funds, ETFs trade like a common stock on the stock exchange and the price of an ETF changes as per the trading in the market takes place. The trading value of an ETF depends on the net asset value of the underlying stock that it represents. ETFs, generally, have higher daily liquidity and lower fees than mutual fund schemes. Therefore, an ETF possesses lower risk due to its diversification across various market securities rather than being limited to the performance of a single entity. When an investor buys a single share, their investment performance is solely dependent on that one company's performance and market factors affecting it. This introduces higher idiosyncratic risk. In contrast, an ETF holds a basket of securities, spreading the risk across multiple companies or assets. If one security in the ETF's portfolio performs poorly, the impact is mitigated by the performance of other securities in the basket, thus reducing overall risk compared to holding a single share.