ETF vs Mutual Fund: Key Differences for Investors

Exchange-traded funds and mutual funds are both pooled investment vehicles. They use it to buy shares, bonds, golds or other assets. But they operate in different ways. The gap is useful to know, as it allows an investor to connect a product to a goal. Time, access to cash, cost and risk also matter. This guide explains the difference between ETF funds and mutual fund schemes.

What is an ETF fund?

ETF funds are schemes that are listed on a stock exchange. Most follow an index such as the Sensex or Nifty 50. Others follow sectors, global markets, bonds or gold.

ETF units are traded during market hours, like shares. Their price can go up and down during the day. It may be affected by demand, supply and values of fund assets. An investor generally needs a trading account and a demat account.

What Is a Mutual Fund? 

A mutual fund is a pool of money from many investors. The fund manager invests the pool as set out in the scheme document. The scheme can use an active plan. It might also have a passive index strategy.

The units are purchased from or redeemed back to the fund house. Orders are placed at the relevant net asset value (NAV). Cut-off rules specify which NAV applies. 

Differences between ETF Funds and Mutual Funds

1. Trading Process

The ETF units are traded at an exchange. A mutual fund deal is done by a fund house. You can use its app, web site, registrar, or approved distributor.