ETF Vs Mutual Fund

One major difference between the Exchange Traded Funds and Mutual Funds is that ETFs can be bought through brokerages and not through fund management companies as mutual funds do.

In this article, you will get a walkthrough of major differences between the ETFs and Mutual Funds that will help you understand them more.

What is Exchange Traded Fund (ETF)?

Exchange-Traded Funds hold assets such as stocks, bonds, and commodities, and are traded on the stock exchange. The ETF prices keep fluctuating throughout the day as a result they have fewer fees and high liquidity in comparison to mutual funds.

Exchange-Traded Funds can be used for:

• Hedging
• Arbitrage
• Equitizing cash

Traded on the public stock exchange, ETFs can be transferred, sold, or bought easily on the daily basis.

Some key highlights of ETFs (Exchange Traded Funds) are as follows:

• Buying and selling can be done marginally and shortly
• As low as one share can be bought or sold as there is no investment limit
• Transactions are made in real-time
• Commission for broker paid for regular order is same as selling or buying of Exchange Traded Funds

What is Mutual Fund?

A pool of total accumulated amounts professionally managed by multiple investors is termed mutual funds. In broader terms, when various fund houses or AMCs (Asset Management Companies) come together to pool in the investments of numerous individuals or trusts to earn capital returns over a while, a mutual fund vehicle is formed. 

Mutual fund investment is one of the top growing investment options in India for individuals who expect decent returns on their capital investments over some time. Fund managers manage all the investments under any mutual fund.

Typically, there are two types of mutual funds:

1. Open-ended funds:

   Under open-ended funds, the sale and purchase of funds are directly handled by the investors and fund companies. These funds are in domination in the mutual fund market.

2. Close-ended funds:

   A limited number of shares are issued under the close-ended funds. The demand of the investor determines the price of the fund and not the Net Asset Value (NAV).

ETFs Vs Mutual Funds: The Difference

Let us compare the Exchange-Traded Funds and Mutual Funds to analyze the difference.

Decision Between ETFs and Mutual Funds

It is difficult to decide between Exchange Traded Funds and Mutual funds as both the investment options provide a great financial corpus in the future depending upon the kind of investments made.

Some common points to keep in mind before investing in any of the above-mentioned options are:

• Investors personal risk appetite
• Investors financial goals
• Investors capacity to invest
• The investment horizon
• Future tax-saving and investments strategies

Final Words!

It is important to think about yourself, your needs, requirements, and your current financial standing before making any kind of investment for the future. While Exchange Traded Funds are flexible and offer high returns in the short term, Mutual Funds require long-term investments for a better financial corpus in the future.