What’s the Difference Between Funds and ETFs?

An exchange traded fund is a kind of mutual fund and exchange traded product, i. e. they are usually traded on major stock exchanges like NASDAQ, NYSE and AMEX. Exchange traded funds or ETFs are created by institutional investors; that is, wealthy individuals, banks, insurance companies, pension funds and entities like publicly held corporations. They can be invested in a number of different sectors, portfolios or individual stocks. The ETF will pay out a profit once a chosen investment reaches a certain price target.

The transaction fees that apply to mutual funds and ETFs are typically much lower than the transaction fees and commission that apply to individual stocks traded in the same market. It is also easier to find ETFs that fit your specific investing needs. You can search the web or visit your local bank or financial institution to look for ETFs that are right for you.

Funds and ETFs also differ when it comes to expenses. Managed funds generally pay no expense ratio and only a management expense. The fees that apply to an individual stock include a listing fee, transaction fee, redemption fee, and an additional profit fee. One advantage that comes with managed funds is that an investor can diversify his or her portfolio without worrying about managing individual stocks or sectors. An ETF generally offers similar investing opportunities as mutual funds, but with added convenience. Investors should take time to learn more about the difference between an ETF and mutual fund so that they can determine the best option for their particular investment needs.