The Difference Between ETFs & Mutual Funds

In the fast-paced arena of trading, ETFs and mutual funds emerge as the top two key players, each with its unique allure and advantages. Exchange-traded funds (ETFs) are a form of security that tracks an index, group of instruments, or commodity but trades like a stock on an exchange.

Mutual funds, on the other hand, are a type of investment that pools money from various investors to purchase stocks, bonds, and other securities.

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ETFs vs Mutual Funds

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The Similarities

• Greater exposure Both options offer exposure to stocks, bonds, and other instruments, helping to diversify your account.
• Lower potential risk Since your funds will be spread across multiple instruments, it reduces the potential impact on your account of a single stock or instrument tanking.
• Low capital requirement/fees Both shares of ETFs and mutual funds can be traded for any amount of capital, though mutual funds might require a minimum investment.
• High liquidity Both ETFs and mutual funds are quite liquid and can be bought or sold on any business day when the market is open.

The Differences

• Trading structure ETFs trade just like stocks, while mutual funds only trade once a day at the closing bell.
• Fees ETF fees are generally quite low as most are passively managed to replicate a specific index, while mutual funds could be actively managed and incur a management fee.

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