September 26, 2022

World Trades

Finance Blog

Choose Wisely Between Mutual Fund And ETF

2 min read

Mutual funds are professionally managed funds that pool together money from investors to buy stocks, bonds, and other financial instruments. The mutual fund will sell shares or units to investors to raise money which is then invested in different assets based on the objective and profile of that mutual fund. The mutual fund generates money from the dividends and interest from its investments and also from any profits generated from the sale of any of its assets. This is how the value of the mutual fund rises and you make money as an investor. is your best option in this scenario.

What’s an ETF?

Similar to mutual funds, Exchange Traded Funds (or ETFs) are investment funds that are made up of individual assets (such as stocks or bonds). However, unlike mutual funds, the value of the assets that an ETF owns is divided into shares that are traded on the market similar to a stock. Think of an ETF as a mix between a mutual fund and a stock. An ETF can contain multiple different types of investments (similar to a mutual fund) but is also traded on an exchange (like a stock).

Mutual Fund vs. ETF the Main Difference

  • Mutual funds aren’t traded in real-time on an exchange (like an ETF)

As mentioned earlier, the biggest difference between a mutual fund and an ETF is that mutual funds aren’t traded on a stock exchange.

ETFs on the other hand, are traded on an exchange so you will be able to see the live market price of the ETF throughout the trading day (similar to any stock).

  • Mutual funds are usually actively managed and ETFs are usually passively managed

Mutual funds often take a more active investing approach which means that the fund managers generally are attempting to select individual financial products that they believe will perform better than the market. In other words, generally, the managers of mutual funds are trying to beat the returns of the market.

Most ETFs, on the other hand, take a more passive investing approach which means that the fund managers are trying to mirror the performance of the market.

  • ETFs are generally cheaper than mutual funds

Because mutual funds generally take a more active approach, their fees are usually higher than ETFs. Mutual fund managers are constantly trying to buy and sell different investments in an attempt to beat the returns of the market.

To conclude

ETFs (or Exchange Traded Funds) and Mutual Funds are two of the most popular investment options for people looking to easily diversify by buying a “basket” of individual investment products.