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What's the Difference Between an ETF and a Mutual Fund?

Written by Greg, founder of FTMarketWatch — a former licensed commodities trader, self-directed investor since. Not a licensed financial advisor.

Short answer: Both ETFs and mutual funds pool investors' money into a basket of holdings, but ETFs trade throughout the day on an exchange like a stock, while mutual funds are priced and traded once per day after the market closes. ETFs also tend to have lower average fees, though this varies fund by fund.

Detailed Explanation

An ETF (exchange-traded fund) can be bought or sold any time the market is open, at a price that moves throughout the day. A mutual fund is bought or sold at a single price calculated once daily, after markets close.

ETFs are often, but not always, passively managed index funds, which tends to keep their fees (expense ratios) lower on average than actively managed mutual funds. Many mutual funds are actively managed, meaning a manager is trying to beat a benchmark, which usually comes with higher fees.

In a taxable (non-registered) account, ETFs can also be somewhat more tax-efficient than mutual funds because of how they're structured, though this depends on the specific funds and your jurisdiction. Both can hold similar underlying assets — stocks, bonds, or a mix — so the choice often comes down to trading flexibility, fees, and the specific fund's strategy rather than the wrapper itself.

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