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The Difference Between ETF and Mutual Fund Explained
Are ETFs and Mutual Funds really two different things? Let’s find out.
What are Mutual Funds?
Mutual Funds are professionally managed investment schemes wherein the fund manager pools together the money from several investors to invest in a variety of securities as per the predefined objectives. SEBI has classified mutual funds into different types, one of which is an ETF.
What are ETFs?
Exchange Traded Funds or ETFS are mutual funds that replicate a specific benchmark index. For instance, an ETF can mirror BSE Sensex 30 index. ETFs are traded on the stock exchange where you can buy and sell ETF units just like a share.
Mutual Funds vs ETFs
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Mutual Funds |
ETFS |
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Buy and sell from the fund house. |
Buy and sell on stock exchanges (trade takes place between investors). |
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Actively managed, so higher expense ratio. |
Passively managed, so lower expense ratio. |
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You don’t have to pay any commission or brokerage fees. |
Since ETFs are traded like other securities on the exchange, investors have to pay a brokerage. |
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Returns are based on the performance of the portfolio, which is dependent on the decisions of the fund manager. |
Returns are based on the performance of the index, which is based on the performance of the stock that make up the index. |
How to buy ETFs and Mutual Funds?
Whether you decide to invest in Mutual Funds or ETFs, you will need a demat and trading account to buy and store your securities. Consider opening one with a reputed broker like ICICI Direct.
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