Difference between Mutual Funds and ETFs

Meaning

Mutual Funds are investment funds that pool money from investors to buy a diversified portfolio of stocks, bonds, or other securities.

Exchange-Traded Funds are investment funds that are traded on stock exchanges, much like individual stocks.

Structure

Mutual Funds are open-ended investment funds.

ETFs are open-ended investment funds traded on stock exchanges.

Trading

Mutual Funds are traded directly with the fund company at Net Asset Value.

ETFs are traded on stock exchanges like individual stocks.

Minimum Investment

Mutual Funds usually requires a higher minimum investment.

Investors can trade in ETFs with smaller amount.

Liquidity

Mutual Funds are redeemed directly with the fund company.

ETFs are bought or sold on stock exchanges during market hours.

Pricing

Mutual Funds are priced at end-of-the-day Net Asset Value.

ETFs are prices at real-time market price.

Taxation

They are less tax-efficient.

They are more tax-efficient.

Expense Ratio

Expense Ratio is usually higher due to active management.

Expense Ratio is usually lower due to passive management and tracking an index.

Entry/Exit

One can invest directly with AMC or through distributors.

Trades are executed through brokerage accounts.