ETF vs Mutual Funds: What Really Pays
Costs, liquidity, transparency, and performance. When an ETF wins — and when an active fund might still make sense.
ETF vs Mutual Funds — Definitions
- ETF: typically passive, listed on an exchange, intraday pricing
- Mutual fund: often active, priced end-of-day, distributed by banks
Key Differences at a Glance
| Aspect | ETF | Mutual Fund |
|---|---|---|
| Fees | Low TER (0.05–0.30%) | Higher (1–2%+) |
| Trading | Intraday, market orders | End-of-day NAV |
| Transparency | Daily holdings (often) | Monthly/quarterly |
| Tax | Depends on domicile/share class | Depends on domicile/class |
| Performance | Index-like (minus costs) | Manager-dependent |
Fees & Tracking Difference
For buy-and-hold investors, compounding of lower fees in ETFs is a major driver of net returns. Check tracking difference over 3–5 years.
Liquidity & Trading Practicalities
- Use limit orders for thinly traded ETFs
- Mind the bid-ask spread and trading hours
- Consider distributing vs accumulating for cash-flow
When to Choose Which
- ETF — core, broad-market exposure; cost efficiency
- Mutual fund — niche strategy, closed exchange hours, or when a top-tier manager adds value
FAQ
Are ETFs always better?
No. They’re usually cheaper, but some active funds can outperform net of fees in specific niches.
What about minimum investment?
ETFs can be bought as single shares (or fractionals, where available). Funds sometimes have minimums.
Tax differences?
Vary by country and fund domicile. Consult a tax professional.
Educational only — not financial advice. Investing involves risk, including loss of capital.