Debt Funds

What are ETFs and mutual funds?

By admin
13 October 2025
3 mins read

Twitter

Facebook

Exchange-Traded Funds (ETFs) and mutual funds are two popular investment instruments that allow you to diversify your portfolio. While both pool money from multiple investors, they differ in structure, costs, and flexibility. Understanding the differences between mutual funds and ETFs can help you choose the right option based on your goals, risk appetite, and investment style.

Key Differences Between ETFs and Mutual Funds

The following table explains what is the difference between ETFs and mutual funds.

S.No.	Factors	Mutual Funds	ETFs
1	Buying and selling	Mutual fund units are bought at a fixed NAV price during the trading day and sold at the closing asset value	ETF units are traded on the stock exchange throughout the day, with NAV changing constantly. They can be bought or sold at the market price anytime
2	Fund management charges	High expense ratio	Low expense ratio and more returns.
3	Minimum investment	Most require Rs. 100 or Rs. 500	No minimum investment required
4	Liquidity	Mutual funds are traded only once daily, based on the Net Asset Value (NAV) calculated at the end of the trading day	ETFs trade like stocks throughout the day, offering higher liquidity
5	Investment Approach	Actively managed based on analysis and market outlook by fund managers	Passively managed as they track a particular index
6	Taxation	Less tax-efficient	More tax-efficient with less capital gains tax
7	Diversification	ETFs track a specific index or sector, offering more targeted investments	Mutual funds provide broader diversification across asset classes.

ETF vs. Mutual Fund

While ETFs and mutual funds are similar in several ways, understanding the differences between exchange-traded funds vs. mutual funds is key to making informed decisions.

The first significant difference lies in the way they are traded. ETFs are traded like shares on stock exchanges throughout the day, whereas mutual funds are bought or redeemed directly with the fund house at the end-of-day NAV.
The second ETF versus mutual fund difference lies in their costs. ETFs typically have lower expense ratio and no fund management charges, while mutual funds may have higher expense ratios and management fees.
Both offer diversification by pooling money across many securities. However, mutual funds can be actively managed, allowing for broader diversification into debt, equity, and hybrid options, while ETFs usually track a specific index or sector.
Liquidity is another factor of differentiation. ETFs offer intraday liquidity since they trade like stocks, whereas mutual funds can only be bought or sold once daily.
The minimum investment for the two options also varies greatly. ETFs require you to buy at least one unit, whereas mutual funds may have higher minimum lump sum or SIP amounts.
Another difference between ETFs vs. mutual funds is the taxation of gains. If you redeem mutual funds in less than one year, the taxation rates on gains are higher than those of ETFs held for less than a year.
The exit load must also be considered as a point of differentiation between ETFs and mutual funds. Mutual funds may levy exit loads, but ETFs usually don’t. They may incur brokerage charges.

Similarities Between ETFs and Mutual Funds

Now that you have the answers to what are ETFs and mutual funds, here are the similarities between them:

Both mutual funds and exchange-traded funds pool together several investors’ money.
Both funds are managed by professional fund managers working with fund houses.
Fund managers invest the collected money in a variety of asset types like bonds, stocks, commodities, securities, or a combination of these.
Both can be active funds or passive funds.

Visit Moneyfy Website For More Details

FAQs

Is ETF better than SIP?

ETFs and SIPs serve different investment purposes. The best option depends on your preference. If you want to be actively involved in your investments, you can opt for ETFs. But if you don’t want the hassle of actively managing your account, you can consider starting an SIP.

Which is better, ETF vs mutual fund?

ETFs are more cost-effective and flexible for active traders. On the other hand, mutual funds are an excellent option for long-term investors seeking professional management. The best between the two depends on your preferences and investment style.

Is ETF better than FD?

While ETFs have the potential to generate higher returns than FDs, they also come with higher risk, making them ideal for higher-risk investors. But if you’re risk-averse and are looking for guaranteed stable returns, FDs may be the better choice for you.

What is the difference between mutual fund NAV and ETF NAV?

Mutual fund Net Asset Value (NAV) is calculated at the end of the trading day, while ETFs’ NAV fluctuates throughout the day as they trade like stocks on stock exchanges.

Do ETFs grow faster than mutual funds?

The growth of ETFs and mutual funds depends on market conditions, strategy, and performance. There is no certainty that one may outperform the other.

Does ETF have an exit load?

Generally, ETFs don’t have an exit load, which means you don’t need to pay fees when you redeem your investment. You can sell them on the exchange at any time, but brokerage charges and taxes may still apply.

Why choose an ETF over a mutual fund?

ETFs have a lower expense ratio, offer real-time trading flexibility, and are more tax-efficient than mutual funds, making them cost-effective for investors.