ETFs vs mutual funds

ETFs and mutual funds seem similar, but they have some key differences. Find out what they are.

Exchange-traded funds (ETFs) and mutual funds are both types of funds. On the face of it, they’re pretty similar with both being collections of investments (equities, bonds and alternative assets), but each of them have slightly different characteristics. We’ve pooled together some of the similarities and differences between ETFs and mutual funds.

ETFs vs mutual funds: At a glance

ETFsMutual funds
Listed on a stock exchange?
DiversificationMediumMedium
LiquidityLiquidLiquid
Type of fundPassivePassive
Investment optionsBroad – commodities, sectors and indicesNarrow – indices only
PricedInstantlyAt the end of the day

ETFs vs mutual funds: What’s the minimum I can invest?

The minimum investment tends to be higher for mutual funds than ETFs. They tend to be £3,000 or more for mutual funds but as little as £50 for ETFs.

ETFs vs mutual funds: Costs

In general, ETFs are cheap. It is possible to buy an S&P 500 ETF for under 0.1%. This will be higher for niche areas, such as emerging markets and also for more complex ETFs, such as those with leverage. There will also be a “bid” price (the price to sell the ETF) and an “ask” price (the price to buy the ETF). In large ETFs, this will be minimal, but there can be a wider gap for smaller funds.

In contrast, actively managed funds such as mutual funds are more expensive, with expense ratios (the cost against the amount invested) between 0.5% and 0.75%. This is because an investor is paying for an experienced fund manager and their research team to uncover stocks they believe will rise.

The annual management fee can exert a significant drag on your investments over time. The difference between a £10,000 investment growing at 5% per year and 4.5% per year over 25 years is £34,813 versus £30,737. That said, a good fund manager can deliver many multiples of their fees. As such, if an investor finds a good one, it can be well worth the extra cost.

ETFs vs mutual funds: Which should I choose?

ETFs are likely to be the right choice if:

  • You want to move in and out of your investments quickly
  • You want low cost access to a market
  • You don’t have a lot to invest
  • You want fully transparent pricing
  • You want access to certain asset classes, including commodities or currencies
  • You want short or leveraged access to specific asset classes

See best performing ETFs

Mutual funds are likely to be the right choice if:

  • You want a professional to oversee their investment
  • You want a chance to do better than the index
  • You don’t want to be concentrated in certain sectors
  • You are saving regularly (month to month)
  • You want access to specific asset classes such as property or private equity, which are difficult to achieve in ETF form

How to buy and sell ETFs and mutual funds

ETFs are traded on the stock market like company shares. They can be bought or sold at any time during trading hours. You pay a brokerage fee for buying and selling, plus an ongoing annual management fee.

For mutual funds, you buy and sell through an investment platform. When the holding is sold, it may take three or four days and, if the market moves in the interim, the price may be notably different.

Our top picks for where to buy ETFs

Best for ETFs
Saxo Share Dealing Account logo
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Capital at risk. T&Cs apply.
Exclusive: Get £200 back in fees
Over 6,000 ETFs & funds
Access 50 global markets
Commissions from $1
Best for fractional shares
XTB ETFs logo
Finder Award
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Capital at risk. T&Cs apply.
Earn up to 5.2% interest on uninvested cash.
Commission-free trading
Over 5,400 stocks & ETFs
Invest in fractional shares
Best for customer satisfaction
Hargreaves Lansdown Fund and Share Account logo
Finder Award
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Capital at risk. T&Cs apply.
97% would recommend
Free fund trading
Expert insights
Wide range of accounts

ETFs vs mutual funds: Bottom line

There are great ETFs and great mutual funds and the right choice will be highly personal. There will be times in the market when one does better over the other. Equally, the right option may be a blend of the two. There are strong views on both sides, but there is no right or wrong answer.

To compare platforms that offer ETFs and mutual funds, have a look at our table.

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

Zoe Stabler DipFA's headshot
Senior writer

Zoe was a senior writer at Finder specialising in investment and banking, and during this time, she joined the Women in FinTech Powerlist 2022. She is currently a senior money writer at Be Clever With Your Cash. Zoe has a BA in English literature and a Diploma for Financial Advisers. She has several years of experience in writing about all things personal finance. Zoe has a particular love for spreadsheets, having also worked as a management accountant. In her spare time, you’ll find Zoe skating at her local ice rink. See full bio

Zoe's expertise
Zoe has written 179 Finder guides across topics including:
  • Share dealing
  • Reviews and comparisons of trading platforms
  • Robo-advisors
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