{"id":337223,"date":"2020-09-22T16:30:19","date_gmt":"2020-09-22T15:30:19","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=337223"},"modified":"2026-01-28T16:31:03","modified_gmt":"2026-01-28T16:31:03","slug":"etfs-vs-mutual-funds","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/share-trading\/invest-in\/exchange-traded-funds-etfs\/etfs-vs-mutual-funds","title":{"rendered":"ETFs vs mutual funds"},"content":{"rendered":"

Exchange-traded funds (ETFs<\/a>) and mutual funds are both types of funds. On the face of it, they\u2019re pretty similar with both being collections of investments (equities, bonds and alternative assets), but each of them have slightly different characteristics. We\u2019ve pooled together some of the similarities and differences between ETFs and mutual funds.<\/p>

ETFs vs mutual funds: At a glance<\/h3>
<\/th>ETFs<\/th>Mutual funds<\/th><\/tr><\/thead>
Listed on a stock exchange?<\/th> <\/use><\/svg><\/td> <\/use><\/svg><\/td><\/tr>
Diversification<\/th>Medium<\/td>Medium<\/td><\/tr>
Liquidity<\/th>Liquid<\/td>Liquid<\/td><\/tr>
Type of fund<\/th>Passive<\/td>Passive<\/td><\/tr>
Investment options<\/th>Broad \u2013 commodities, sectors and indices<\/td>Narrow \u2013 indices only<\/td><\/tr>
Priced<\/th>Instantly<\/td>At the end of the day<\/td><\/tr><\/tbody><\/table>

ETFs vs mutual funds: What\u2019s the minimum I can invest?<\/h3>

The minimum investment tends to be higher for mutual funds than ETFs. They tend to be \u00a33,000 or more for mutual funds but as little as \u00a350 for ETFs.<\/p>

ETFs vs mutual funds: Costs<\/h3>

In general, ETFs are cheap. It is possible to buy an S&P 500 ETF<\/a> for under 0.1%. This will be higher for niche areas, such as emerging markets<\/a> and also for more complex ETFs, such as those with leverage<\/a>. There will also be a \u201cbid\u201d price (the price to sell the ETF) and an \u201cask\u201d price (the price to buy the ETF). In large ETFs, this will be minimal, but there can be a wider gap for smaller funds.<\/p>

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.<\/p>

The annual management fee can exert a significant drag on your investments over time. The difference between a \u00a310,000 investment growing at 5% per year and 4.5% per year over 25 years is \u00a334,813 versus \u00a330,737. 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.<\/p>

ETFs vs mutual funds: Which should I choose?<\/h3>

ETFs are likely to be the right choice if:<\/h4>