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ETF Vs Mutual Fund Comparison- Side By Side Compare -Which Is Better?

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Amazing Facts about ETF and Mutual Fund and the difference between them

Let’s discuss etf vs mutual funds in detail to help you choose the right option for your investment.

Mutual FundsETF
Priced determined at the end of trading dayPriced throughout the day
Capital gains shared with shareholdersEither distributed among shareholders or reinvested
Unable to track indexesActively track index
Fees 1% to 1.5% (indicative)Fees 0.5% (indicative)
Dividend reinvestedDividend distributed
Cannot buy or sell options on fundMay have options ability
Periodic reportingMore Transparent
ETF Vs Mutual Fund Comparison

ETF vs Mutual Funds Flexibility

ETFs offer a higher degree of flexibility as it can be traded as usual stocks. The same degree of flexibility is unavailable in the mutual funds. More importantly, investors offer trading of ETFs throughout the trading day as in stocks. 

NAV Price differential

Another major difference that makes ETF an attractive investment proposition is that the investors can purchase units of the traditional mutual funds only at the fund’s NAV, which is published at the end of each trading day while investors cannot purchase ETFs at the closing NAV. 

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ETFs are immediately tradable and hence, the risk of the price differential between the time of investment and time of trade is significantly less in the case of ETFs.

Less Fees/commission

ETFs are less expensive than traditional mutual funds and index funds as they cost lesser fees that get paid to manage funds. However, while investing in an ETF through a broker, a commission may be charged. 

Low Expense Ratios

Due to passively managed, ETF has low expense ratios. Mutual funds can charge fees ranging from 1% to 3%, or even more while ETFs expense ratios are almost always less than 1%. The cost differential can cause a significant difference in your investment.

Lower Tracking Error

ETF’s tracking error is generally lower than traditional index funds. 

ETF traded throughout the day 

ETF prices are clearly visible on the stock exchange as it is bought and sold throughout the day very similar to any other stock on a stock exchange using a broker or a dealer. 

Transparent Portfolio

ETFs offer transparent portfolios, so institutional investors are aware of the portfolio assets that they consider to purchase as a creation unit, and the exchange disseminates the updated NAV of the shares throughout the day of trading at an interval of 15-seconds.

Costs

This is evident as ETFs generate a lower expense ratio. While ETF has lower expense ratios, it does not call for investments in cash or fund cash redemptions. 

No Additional Fees/charges

There are other fees associated like management fees or expense charges with mutual funds that do not exist with ETFs are redemption fees and short-term trading fees.

Taxation

ETFs are tax-efficient, hence can be increasingly attractive as compared with mutual funds. 

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Trading

ETF brings in is its stock-like features. Considering a mutual fund can only be bought or sold at the end of a trading day whereas ETFs can be traded during the period when the market is open. 

Nifty ETF vs Mutual Fund

Mutual funds are actively traded on the stock exchange while Nifty ETFS are not. Mutual funds are under direct supervision of fund managers,

Another difference is, investors can short sell, use a limit order, use a stop-loss, buy on margin, and invest the money as per their choice or the funds available with them at a given point in time in Nifty ETF. Mutual funds may not offer this. 

No Cap / Minimum Investment

There is no requirement of minimum investment or a cap for ETF. 

Additional Features

Also, many ETFs offer the options facility (puts and calls) to be written against them. Mutual funds do not offer these vital aforementioned features.

Let’s discuss gold ETF vs gold mutual fund.

Gold ETF invests in physical gold of 99.5 percent purity. Gold ETF invests about 90% to 100% in physical gold that is banks as approved by RBI and 0% to 10% in debt instruments while a gold fund is an open-ended fund that invests in gold ETF.

ETF vs Mutual fund Conclusion

At the end, to sum up, presenting Etf vs mutual funds at a glance shared in a tabular form below.

Last but not least, ETF vs mutual fund returns.

As discussed earlier, ETFs are passively managed funds and generate fewer capital gains. On the other hand, Mutual funds are actively managed, hence paid-up capital gain tax and fund management fees cause lesser return value that ETFs.

ETF vs Mutual Fund FAQs

Q1. Is ETF better than Mutual fund?

Both come with their own advantages. Etf is simple to invest and more cost-effective, sometimes more tax-efficient as well. This is because ETF is passively managed while mutual funds are actively managed to result in high management fees.

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Q2. Is ETF better than Stocks?

If you want to buy every stock individually, it will cost you more. ETF is a basket of stocks hence cheaper than buying them individually. Also, ETF calls for lower fees for transactions, but you are charged fees for every single transaction of every single stock.

Q3. Are ETF better than Mutual funds?

ETF better in many ways. Etf is passively managed, more transparent. It incurs lower brokerage fees and less expense ratios. It is more tax-efficient as it realizes fewer capital gains. It tracks the index.

Q4. What are ETF vs mutual fund pros and cons?

ETFs are more flexible. It is traded just like stocks throughout the day. It has lower fees and expense ratios. More tax-efficient and transparent. ETFs are Passively managed.

Q5. Is it better to invest in the ETF?

If you are investing for tax advantage then ETF is the answer. If you want to pay the lowest brokerage or management fees then ETF is the best option. If you do not want to manage every stock individually then ETF is a basket of stocks that can be managed all together. ETF does not have a minimum investment cap.

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