ETFs vs Mutual Funds: What's the difference?

What are Mutual Funds
A mutual fund is a corporation that collects money from several investors and invests it in stocks, bonds, and short-term loans. A mutual fund portfolio is a combination of the fund's holdings.

Mutual funds are often more actively managed than ETFs. Still, index funds, a type of mutual fund, have low portfolio turnover and generally lower expense ratios than actively managed mutual funds. The expense ratios are often identical to their ETF counterparts.

Differences between ETFs and Mutual Funds
Although investing in ETFs and Mutual Funds is less risky than individual stocks and offers a wide variety of investment options, they are different as follows.

1. Trading time
Mutual funds can only be traded or redeemed after the market close. However, you can trade ETFs on a stock exchange during market hours.

2. Purchase price
Since ETFs are bought and sold on a stock exchange, market forces dictate the funds' value. In contrast, mutual funds are always priced at their net asset value at the end of every trading day.

3. Expense
For the most part, ETFs are less costly than mutual funds. Mutual funds charge their shareholders for everything that goes on inside the fund, such as transaction fees, distribution charges, and transfer-agent costs. On the other hand, ETFs do not charge a lot. ETFs are traded directly on an exchange and may be subject to brokerage commissions, which can vary depending on the firm.

4. Management
Mutual funds offer a wide range of actively-managed fund options, while ETFs are more passively managed.

The table below concluded the main differences between ETFs and mutual funds:

These are the main differences between ETFs and Mutual funds. Understanding the differences between ETFs and mutual funds can help you decide which is best for you.

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