Mutual Fund and ETFs

Mutual Fund vs. ETF: An Overview

Mutual funds and exchange-traded funds (ETFs) have a lot in common. Both types of funds consist of a mix of many different assets and represent a popular way for investors to diversify. While mutual funds and ETFs are similar in many respects, they also have some key differences. A major difference between the two is that ETFs can be traded intra-day like stocks, while mutual funds only can be purchased at the end of each trading day based on a calculated price known as the net asset value.

Mutual funds in their present form have been around for almost a century, with the first mutual fund launched in 1924. Exchange-traded funds are relatively new entrants in the investment arena, with the first ETF launched in January 1993; this was the SPDR S&P 500 ETF Trust (SPY).

In past years, most mutual funds were actively managed, meaning fund managers made decisions about how to allocate assets in the fund, while ETFs were generally passively managed and tracked market indices or specific sector indices. That distinction has become blurred in recent years, as passive index funds make up a significant proportion of mutual funds' assets under management, while there is a growing range of actively-managed ETFs available to investors.