What’s the difference between an ETF and a Mutual Fund?

Category: etfs-faq

ETFs are generally regarded as being far more transparent than mutual funds on a number of fronts. The precise mix of securities held by an ETF is published every single day, so as an investor you can know exactly what you are holding. Mutual funds, on the other hand, only publish their holdings once per quarter, which means that you can never really be sure of the exact asset mix you’re investing because by the time it is published, it can already be out of date.

ETFs are also more transparent in terms of costs, due to the fact that all the costs of trading are present in the spread, plus the commissions paid by the trader. This means that the activities of any one investor do not affect the rest. The same cannot be said of mutual funds, where the trading costs related to inflows and outflows are borne by all the individual investors of the fund in question. The exchange-traded nature of an ETF means that its fee structure is far more transparent to investors than that of a mutual fund, which is not traded over an exchange.

Finally, ETFs are also thought to be more liquid than mutual funds since they are traded over an exchange. This means that an ETF can be bought and sold all day long, whereas, in the case of mutual funds, you are purchasing directly from the issuer, not the market itself, at the relevant price at the day’s end.