What is the Difference Between ETF and Mutual Fund?
🆚 Go to Comparative Table 🆚ETFs (Exchange-Traded Funds) and Mutual Funds are both pooled investment funds that offer investors a stake in a diversified portfolio of assets. They have some similarities but also key differences:
Similarities:
- Diversification: Both ETFs and Mutual Funds provide built-in diversification by including a wide variety of stocks or bonds in a single fund.
- Access to various asset classes and markets: Both types of funds give investors access to a wide range of U.S. and international stocks and bonds, allowing them to invest broadly or narrowly depending on their personal goals and investing style.
- Professional management: ETFs and Mutual Funds are managed by experts who choose and monitor the stocks or bonds the funds invest in.
Differences:
- Trading: ETFs can be bought and sold like stocks throughout the trading day, while Mutual Funds can only be purchased at the end of each trading day based on a calculated price.
- Management: While most ETFs are passive investments pegged to the performance of a particular index, most Mutual Funds are actively managed by fund managers. However, there are also actively-managed ETFs.
- Tax efficiency: ETFs tend to be more tax-efficient than Mutual Funds, as they may generate fewer capital gains for investors.
- Fees and expenses: Actively-managed Mutual Funds tend to have higher fees and expense ratios than ETFs due to the higher operating costs involved in active management.
- Liquidity: ETF shareholders can trade throughout the day, just as with stocks, while Mutual Fund investors can usually redeem their shares with ease on a daily basis.
In summary, ETFs are more suitable for investors who prefer intra-day trading, tax efficiency, and lower fees, while Mutual Funds are better for those who prefer active management and the ability to redeem shares daily.
On this pageWhat is the Difference Between ETF and Mutual Fund? Comparative Table: ETF vs Mutual Fund
Comparative Table: ETF vs Mutual Fund
Here is a table comparing the differences between ETFs and Mutual Funds:
Feature | ETFs | Mutual Funds |
---|---|---|
Trading | Bought and sold like stocks, traded intra-day | Can only be purchased at the end of each trading day based on a calculated price |
Management | Mostly passively managed, tracking market indices or specific sector indices | Mostly actively managed by fund managers |
Tax Efficiency | Generally more tax-efficient due to the way shares are created and redeemed | Generally less tax-efficient compared to ETFs |
Diversification | Provides an easy, cost-efficient way to diversify a portfolio | Provides an easy, cost-efficient way to diversify a portfolio |
Purchase and Sale | Can be traded using intraday trades, stop orders, limit orders, options, and short selling | Cannot be traded using intraday trades, stop orders, limit orders, options, and short selling |
Availability | Can be purchased and sold throughout the trading day at market-determined prices | Can only be purchased at the end of each trading day based on a calculated price |
Minimum Initial Purchase | No minimum initial purchase requirement | May have minimum initial purchase requirements |
Trading on Stock Exchanges | Traded on stock exchanges like stocks | Not traded on stock exchanges |
Both ETFs and Mutual Funds have similarities, such as providing diversification and holding portfolios of stocks and/or bonds. However, they differ in terms of trading, management, tax efficiency, and availability.
Read more:
- ETF vs Managed Fund
- Index Funds vs Mutual Funds
- EPF vs ETF
- Hedge Funds vs Mutual Funds
- Gold ETF vs Gold Fund
- Stocks vs Mutual Funds
- Open Ended vs Closed Ended Mutual Funds
- Dividend Growth vs Dividend Mutual Fund
- Trust vs Fund
- Growth vs Value Funds
- Hedge Funds vs Private Equity
- Portfolio Manager vs Fund Manager
- Growth vs Income Funds
- Active vs Passive Investing
- Money Market vs Capital Market
- Stocks vs Bonds
- EPF vs PPF
- Pension vs Provident Fund
- Securities vs Stocks