ETFs and Mutual Funds are indeed very similar as they provide investors an ability to invest in diversified pool of securities and track a pre-determined index. Differences become much less subtle as one compares few important points for ETFs and Mutual Funds.
- Pricing: ETFs are actively priced throughout the day and portfolio is disclosed on a daily basis vs Mutual Funds which are priced once a day (end of day) and portfolio is disclosed much less frequently (often quarterly)
- Expenses: vary for both ETFs and Mutual Funds depending on the type of strategy they aim to pursue. Generally, it is safe to say that ETFs are cheaper due passive index tracking versus Mutual Funds which are active causing more trading involved and higher expenses. (on average ETF expense ratio is around 0.20% while Mutual Fund is 0.80% - 1.00%).
- Sales Loads and Minimums - Sales load is a charge, generally paid upfront, when purchasing a security. ETFs have no sales loads and or minimum investments, while Mutual Funds are often subjects to both of these constraints
- Tax treatment - ETFs are structured in such a way that it allows them to keep the tax bill low by managing their capital gains. Mutual Funds on the other hand very often end up having capital gains bringing the tax treatment higher
More information on investing in Exchange Traded Funds
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.