All about funds: Comparing ETFs and mutual funds
Exchange-traded funds and mutual funds may sound similar, but they do have some important differences.
October 26, 2023
If you’ve decided you’d like a more diversified approach to investing, or you don’t want to pick individual stocks, exchange-traded funds (ETFs) and mutual funds can be smart options.
But they sound kind of similar, don’t they? How do we tell them apart?
Key similarities between ETFs and mutual funds
- Both are funds that spread your money across different investments, making them more diversified than investing in a single stock.
- They're usually overseen by professional money managers who choose the investments in the funds.
- They regularly follow a theme or category—like a sector, industry, or region (check out this article on thematic investing with Plynk).
- They often charge yearly fees called “expense ratios,” which are taken out of the money you invest.
- ETFs trade on an exchange, which means you can buy and sell them throughout the day. Their prices change as they’re bought and sold.
- Mutual funds trade once at the end of the day when the final price is calculated. Everyone gets the same price.
- Mutual funds require regular rebalancing of investments, which can lead to investors paying slightly higher taxes.
- ETF fund managers share exactly what investments are in their fund every day, so you know when changes are made.
- Mutual fund managers delay sharing exactly what investments are in the fund, and instead share these details monthly or quarterly.
Read more: What are stocks, ETFs, and mutual funds?
Still not sure which to choose?
Remember this: It doesn’t have to be an either/or decision. You can invest in an ETF or mutual fund for as little as $1 in your Plynk account. That means you don’t have to risk a lot of money to dip your toe in and get a feel for the process.
Next steps to consider
Read more: Diversifying with index funds