What Is The Difference Between Exchange Traded Funds (ETFs) and Mutual Funds (MFs)?

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Exchange Traded Funds commonly known as ETFs are financial instruments which pool a bundle of securities to serve a specific goal.

In a slightly similar way, mutual fund schemes collect money from investors to give units and invest the same in different securities depending on the risk and return.

What Is The Difference Between Exchange Traded Funds (ETFs) and Mutual Funds?

Trading

ETF's can be bought or sold just like stocks through stock exchanges anywhere across the country.

While, mutual funds do not see price variation during trading hours as the Net Asset Value (NAV) is set at the end of each trading day.

This gives an added advantage to ETF over traditional funds.

Rate of Return

Most of the ETFs track a particular index and are considered to have lower expenses than actively managed mutual funds. However, when investing in an ETF, an investor needs to pay commission to the broker.

Investment in ETFs works out to be cheaper when compared with traditional mutual funds or index funds in terms of fees and other expenses.

Sales Load

ETFs do not attract any sales load or there are no minimum investment, where as traditional mutual funds, may have both.

ETFs does not attract Taxation

ETFs are considered more tax efficient when compared to mutual funds. Click to know more on ETF taxation.

Here is a quick comparison of ETF and Mutual funds(open-ended mutual funds).

ComparisonETFsMutual funds
TradingTrade during trading dayTrades at closing NAV
ExpensesOperating expenses are lowOperating expenses are high
InvestmentsNo minimum investmentsUsually have investment minimums
TaxationTax-efficientLess tax-efficient compared to ETF
Sales LoadNot applicableCan have sales load
Liquidity ProviderFund itselfStock Market or Fund itself
NAVDailyReal Time

Should You Invest in ETFs or Mutual Funds?

Objectives of both these investment avenues are different. In terms of ETFs in India, gold ETFs are rather popular as compared to other forms of ETFs.

These days mutual funds have attracted a lot of interest and we are seeing record inflows by retail investors into the mutual fund industry.

Having said that we wish to emphasize that since the objectives of both these investment tools are different, each investors could, choose according to his needs.

GoodReturns.in

Read more about: etfs, mutual funds
Story first published: Monday, October 5, 2015, 8:05 [IST]
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