A Comparison of ETFs and Mutual Funds:
Know the Differences
Know the Differences
While ETFs combine features of both open-end mutual funds and stocks, there are some key differences in the structure of ETFs and open-end mutual funds which may have implications for an investor's investment exposure, tax consequences or intended portfolio investment goals. The table below summarizes the important features of ETFs and both index and active open-end mutual funds.
For more information on key criteria for evaluating differences across ETFs, please click here.
| ETFs | Index Mutual Funds | Active Mutual Funds | ||
|---|---|---|---|---|
 |
Most ETFs are passively managed; they seek to track a market index, before fees and expenses, and do not attempt to outperform during rising markets or to take defensive positions in declining markets. Performance may diverge from the ETF's underlying index. | Index mutual funds are passively managed; they seek to track a benchmark index, before fees and expenses, and do not attempt to outperform during rising markets or to take defensive positions in declining markets. Performance may diverge from the fund's underlying index. | Most mutual funds are actively managed, seeking to outperform market indexes. | |
|
Trading | Trade on exchanges intraday at market price, which may be greater or less than its NAV | Accessed directly through the fund company or through a select broker. Pricing generally occurs once a day. | Accessed directly through the fund company or through a select broker. Pricing generally occurs once a day. |
| Redemption process | Shares not individually redeemed through the fund | Redeemed through fund company at end-of-day NAV, less applicable fees. | Redeemed through fund company at end-of-day NAV, less applicable fees. | |
|
Fees | Expense ratio plus transaction costs | Expense ratio (typically lower than active mutual funds¹); may charge sales loads or redemption fees | Expense ratios (typically higher than index-linked products¹); may charge sales loads or redemption fees |
| Tax implications | Transactions generate tax consequences for the transacting shareholder only; obliged to distribute gains to all shareholders | Shareholder transactions may generate tax consequences for all shareholders; obliged to distribute gains to shareholders | Shareholder transactions may generate tax consequences for all shareholders; obliged to distribute gains to shareholders | |
|
Transparency | Generally daily holdings disclosure² | Generally quarterly holdings disclosure | Generally quarterly holdings disclosure |
¹ Active funds typically charge higher fees than index-linked products due to increased trading and research expenses that may be incurred
² In accordance with MSCI licensing, holding for MSCI-indexed funds are updated monthly
² In accordance with MSCI licensing, holding for MSCI-indexed funds are updated monthly
