Financial future is one of the most vital goals to get retained in everyone’s lives. And in today’s competitive world there are numerous options available to substantiate the future of your money, the returns from money as per your aspirations. Among numerous investment options available in India, Mutual funds and ETFs are the prominent ones. They both look relatively similar at first glance, but when analyzed carefully, there are distinctions between both of them.
Let’s get to know the difference between these two investment options and identify by yourself which one is the best to choose.
|Points of differentiation||Mutual funds||ETFs|
|Meanings (what they actually are)||Mutual funds can be interpreted as professionally organized investment schemes that collect money from several investors and then invest it in assorted holdings.
Mutual funds invest in a wide range of securities such as stocks, bonds, debt instruments and much more.
|ETFs or Exchange Traded funds are passively regulated funds that barely imitate an index. These funds usually hold all the stocks in the same weight as they are carried by the underlying index.
An ETF is not actively managed by a fund manager.
|Adability||Mutual funds divisions can be bought or sold only by placing a request with the fund house. NAV indicates the price of one unit of a mutual fund.||ETFs are voluntarily traded in the market and can be bought and sold as per the investor’s nicety. Their market price is available in real-time just like ordinary equity shares.|
|Payments and expenses||The fund manager actively adopts investment decisions on behalf of the investors. As a result, fund management expenses are higher.||As ETFs hardly replicate the performance of an index, they do not need active management. As a result, the fees and expenses associated with ETF investments are low.|
|Commissions||There is no need to pay any commission for the sale and purchase.||As ETFs are traded like any other share on the exchange, investors need to compensate commissions on sale and purchase of units as per the prevailing rules.|
|Management||Mutual funds are more likely to be managed actively by an experienced fund manager who takes all the investment decisions on behalf of the investors.||While in the case of ETFs, the funds merely track the market index. There are some actively managed ETFs also, but they have a higher expense ratio.|
We as your trusted broker has given you an idea of how these two phenomena are different from each other. This article is for information purposes only. Mutual funds are subjected to market risk, please read all scheme related documents carefully.