HomeTaking it individually ETFs and Mutual Funds have their advantages, with each having their disadvantages as well. Exchange-Traded Fund or ETF for short is an umbrella of stocks or bonds that trade on the stock market at a set price, just like any common stock. Since 1993, ETFs have been traded in the US and since 1999 in Europe. They have grown considerably from the recorded 32 in the US Markets in 1999. There are now about a 1000 available to date. They are traditionally index funds and in 2008 were authorized by the US Securities and Exchange Commission as actively-managed ETFs.
Even though they are funds that are traded on an exchange, Closed-end funds are not considered to be ETFs.
Mutual funds on the other hand have been in existence for quite a long while in comparison to ETFs. Serving the average investor for decades, mutual funds are known to have been established around 1924. Similar to the ETF a mutual fund is made up of a basket of investments designed to reflect performance of its holdings. The way these are bought and sold is where there is a major difference between ETFs and mutual funds.
ETFs characteristics in trading is similar to stocks with share prices fluctuating throughout the day the markets stay open allowing an investor to trade multiple times a day. Whereas mutual funds and index funds can trade only once a day.
The fee structure is the other marked difference. ETFs are transparent and have a very straightforward expense ratio, while Mutual funds may a number ways to charge an investor.
ETFs have a few advantages over mutual funds. Some of them are low ownership costs, tax advantages, liquidity, and no minimum investment requirement and many options.
The disadvantages are also present with trading costs varying widely, slippage, brokerage, and dividend drag.
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