Exchange Traded Funds Versus Mutual Funds

Do you want to know how to generate extra income? There are lots of things you can do. But before you do anything, it is best to gain the knowledge in online stocks trading. You can take trading courses, stock market investment courses or option trading courses – anything you want! But lets talk general, big picture stuff. Do you know what an Exchange Traded Fund is? What about a Mutual Fund? Did you know there was a difference?

An Exchange Traded Fund (ETF) and a Mutual Fund may seem quite similar – in fact, they are!

Both ETFs and mutual funds are managed products, which is exactly what it sounds like – they are managed by an investment professional. As an investor, you can invest in both ETFs and Mutual Funds!

So why do individuals invest in one over the other? Although they are similar in a broad sense, they are quite different when you look at them more closely. As an investor, you want to choose the investment vehicle that best suits your risk tolerance and time horizons. Here are five differences between ETFs and Mutual Funds:

1. The Management Style

   ETFs are mostly made up with passive funds; the portfolio manager attempts to replicate the underlying asset in which the ETF is based upon. On the other hand, mutual funds consist of active funds; the portfolio manager makes their investment decisions based on their outlook of the market.

2. Transparency

   ETFs provide full transparency, whereas mutual funds limit how much information is disclosed.

3. Fees

   Since Mutual Funds are actively managed, they have higher costs due to the regular activity and monitoring of the account. Alternatively, ETFs are passively managed, and the fees associated tend to be lower.

4. Tradability

   ETFs can be traded throughout the day in the secondary market, otherwise known as day trading. However, mutual funds can only be purchased at the end of day, based on the net asset value.

5. Minimum Investments

   ETFs can be purchased in single units. However, Mutual funds have a minimum requirement, such as $500. Whatever you invest, you have the potential to make money while you sleep!

These are some differences that you may want to look further into before choosing what to invest in. Choose the investment vehicle that best suits your goals. Do your research and stay knowledgeable so you remain on the path towards financial freedom!