Difference between ETF vs Mutual Funds Explained

What Are Exchange-traded Funds (ETF)?

What Are Mutual Funds?

What Are the Differences Between ETFs and Mutual Funds?

 

Here’s a tabular representation of ETF versus mutual funds in India.

Factors of Differentiation

Exchange-traded Funds

Mutual Funds

Transaction

ETF units can be bought or sold at their current market price throughout a trading day.

Can be bought or sold at their net asset value (NAV) that is fixed for a trading day.

Expense Ratio

Lower expense ratio.

Active mutual funds have higher expense ratio.

Lock-in Period

No lock-in period.

Close-ended and ELSS funds have a lock-in period.

Liquidity

ETFs have higher liquidity.

Mutual funds have comparatively lower liquidity.

Brokerage

Investors pay brokerage for ETF investments.

Brokerage is not applicable.

Demat Account

Mandatory

Not required.

If you ever wonder which is better among ETF or mutual funds, you may consider the following factors -

  • Your risk appetite
  • Liquidity of your investments
  • Your investment horizon
  • Your financial goals
  • Expense ratio

Once you have your priorities set, you can choose your investment. Mutual funds generally require a longer investment horizon than exchange-traded funds. On the other hand, ETFs offer you higher returns, more flexibility and tax benefits in the short run.

Now that you have an idea about exchange-traded funds (ETF) versus mutual funds, you can utilise both to build a diversified portfolio.

Frequently Asked Questions