The Difference Between ETFs & Mutual Funds

Mutual funds and ETFs have similarities as well as differences

By Filip Dimkovski

Edited by Lucia Gcingca

Published May 19, 2024

Wooden blocks spelling out "ETFs" and "Mutual Funds"

In the fast-paced arena of trading, ETFs and mutual funds emerge as the top two key players, each with its unique allure and advantages. Exchange-traded funds (ETFs) are a form of security that tracks an index, group of instruments, or commodity but trades like a stock on an exchange. 
Mutual funds, on the other hand, are a type of investment that pools money from various investors to purchase stocks, bonds, and other securities.
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ETFs vs Mutual Funds﻿
ETFsMutual Funds
ExposureRelatively highRelatively high
Risk potentialRelatively lowRelatively low
Minimum capitalLowRelatively low but could be subject to a minimum investment
Trading structureTraded multiple times a day, similar to stocksTraded once per day at the closing bell
LiquidityHighRelatively high
FeesRelatively low expense ratiosSlightly higher due to management fees/operational costs
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The SimilaritiesGreater exposure Both options offer exposure to stocks, bonds, and other instruments, helping to diversify your account.
Lower potential risk Since your funds will be spread across multiple instruments, it reduces the potential impact on your account of a single stock or instrument tanking.
Low capital requirement/fees Both shares of ETFs and mutual funds can be traded for any amount of capital, though mutual funds might require a minimum investment.
High liquidity Both ETFs and mutual funds are quite liquid and can be bought or sold on any business day when the market is open.
The DifferencesTrading structure ETFs trade just like stocks, while mutual funds only trade once a day at the closing bell.
Fees ETF fees are generally quite low as most are passively managed to replicate a specific index, while mutual funds could be actively managed and incur a management fee.
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	ETFs	Mutual Funds
Exposure	Relatively high	Relatively high
Risk potential	Relatively low	Relatively low
Minimum capital	Low	Relatively low but could be subject to a minimum investment
Trading structure	Traded multiple times a day, similar to stocks	Traded once per day at the closing bell
Liquidity	High	Relatively high
Fees	Relatively low expense ratios	Slightly higher due to management fees/operational costs