Mutual Fund vs. ETF: What are the Differences? - Parthian Securities - Your Smart Brokerage Firm

Mutual funds and exchange-traded funds (ETFs) are similar in many ways. Both are made up of a variety of assets and are popularly used by investors to diversify their portfolios. While these two funds may have striking similarities, they also have some significant distinctions. In this article, we will look at some of the major differences between these two funds.

 What are mutual funds and ETFs?

Mutual funds are made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. ETFs on the other hand are exchange-traded funds that generally track a specific index. When you buy an ETF, you get a collection of assets that can be traded during market hours.

 Click here learn more about ETFs in Nigeria

 So, what are core differences between ETFs and Mutual Funds?

 1. Trading: ETFs can be traded during market hours like stocks, whereas mutual funds can only be purchased at the end of each trading day at a calculated price called the net asset value.

 2. Fund Management: Most mutual funds are actively managed, meaning that fund managers make decisions on how to distribute assets within the fund. Whereas ETFs are mostly passively managed 

3. Capital: Mutual funds often have a higher minimum investment requirement compared to ETFs because they require more time, effort, and personnel for security research and analysis.

4. Pricing: Because ETFs are traded on a stock exchange, the fund’s value is determined by market forces. If the fund is in high demand, it may be priced higher than its net asset value, which is the underlying value of the securities it holds. Mutual funds, on the other hand, are always priced at their net asset value at the end of each trading day.