ETFs

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how etf is different from mutual fund

ETFs offer real-time trading and fluctuate in price like stocks, while mutual funds have relatively stable prices and are traded once daily at net asset value.

Oct 16, 2024 at 11:05 am

Differences Between ETFs and Mutual Funds

1. Tradability

ETFs trade like stocks on exchanges throughout the trading day, allowing investors to buy and sell them at real-time prices.
Mutual funds are typically traded once per day after the market closes, at their net asset value (NAV) calculated at the end of the trading day.

2. Price Fluctuations

ETFs experience fluctuations in their prices based on supply and demand in the market, just like stocks. This allows investors to potentially profit or lose from short-term price movements.
Mutual funds have relatively stable prices because their NAVs are calculated based on the underlying assets' values and are not subject to the same real-time market pressures.

3. Expense Structure

ETFs typically have lower expense ratios than mutual funds due to their passive investment strategies and lower management fees.
Mutual funds often have higher expense ratios to cover the costs of actively managed portfolios and additional services.

4. Investment Strategies

Most ETFs are passively managed, meaning they track a specific index or asset class and invest accordingly.
Mutual funds can be either actively or passively managed. Actively managed funds have portfolio managers who make investment decisions based on market research and analysis.

5. Tax Implications

ETFs can be more tax-efficient than mutual funds because they distribute capital gains distributions when they sell their underlying assets, which can be reinvested for tax-deferred growth.
Mutual funds distribute dividends and capital gains distributions to investors, which can be taxable depending on the investor's tax bracket.

6. Liquidity

ETFs offer greater liquidity than mutual funds because they are traded on exchanges like stocks.
Mutual funds may have redemption fees or holding periods that can restrict investor access to their funds.

7. Suitability

ETFs are suitable for investors seeking real-time trading, potential for price fluctuations, lower expense ratios, and tax efficiency.
Mutual funds are suitable for investors who prefer passive or active management, stable prices, and may not require frequent access to their funds.

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