ETFs vs. Mutual Funds.
It’s important for investors to understand the key differences between traditional mutual funds (open-end) and exchange-traded funds (ETFs). Each has its advantages and disadvantages. This knowledge can translate into making informed investment decisions.
ETFs can be bought or sold just like stocks through stock exchanges anywhere across the country. While, mutual funds do not see price variation during trading hours as the Net Asset Value (NAV) is set at the end of each trading day. This gives an added advantage to ETF over traditional funds.
Rate of Return: Most of the ETFs track a particular index and are considered to have lower expenses than actively managed mutual funds. However, when investing in an ETF, an investor needs to pay commission to the broker. Investment in ETFs works out to be cheaper when compared with traditional mutual funds or index funds in terms of fees and other expenses.
Sales Load: ETFs do not attract any sales load or there are no minimum investment, where as traditional mutual funds, may have both.
ETFs does not attract Taxation ETFs are considered more tax efficient when compared to mutual funds.
While mutual funds and ETFs are different, both can offer exposure to a diversified basket of securities and can be good vehicles to help meet investor objectives. What is important is for investors to pick the best choice for their specific investing needs, whether an ETF, an open-ended mutual fund, or a combination of both.