Exchange-traded funds and mutual funds might have some similarities but, both are fundamentally different. Each type of fund has some pros and cons and serves you differently.

Keep reading to know more about exchange-traded funds (ETF) versus mutual funds and find the key differences before investing.

Exchange-traded funds or ETFs are mostly passively managed funds traded on the stock exchange. They comprise stocks and bonds that carry the underlying index’s exact value. Individuals can buy, sell, and transfer them easily.

ETFs are traded throughout the day, so the value of the assets fluctuate, so you need to buy them at their current market price. As already mentioned, ETFs solely replicate an index, thus requiring no fund manager to monitor them actively.

ETFs are used for purposes like arbitrage, hedging and equitising cash. The shareholders receive dividends paid, and interests earned as a part of the profit.

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Mutual funds accumulate funds from various investors and trade in diversified assets. Professional fund managers actively manage these investment funds. These invest in bonds, stocks, debt instruments or money market instruments.

You purchase or sell a mutual fund at its Net Asset Value or NAV. You can obtain it by dividing the total assets by the number of investors.

The investors hold a share of a mutual fund and experience the same profit or loss as other investors.

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