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Mutual Funds and Exchange Traded Funds (ETF’s), are among the various financial instrument, available for the investors of India to invest their money in. Both of these look similar at first glance, only when analyzed carefully, the big differences between them are made clear to the investor.

Generally, financial experts prefers investing in mutual funds to ETF’s and suggest the same to their customers or other investors. However, it will become easier for investors to choose one among them if he/she understands the difference between the two clearly.

Let’s get to know the difference between these two investment options and understand which one of these you should choose.


MUTUAL FUNDS explained…

Mutual funds are simply financial instruments where investors pool their money in professionally managed investment schemes which are then managed by a professional fund manager who in return invest these amounts in diversified holdings.

Mutual funds invest in a wide range of securities such as stocks, bonds, debt instruments, and much more. These are actively managed funds.

Each of the mutual fund's schemes has a defined NAV (Net Asset Value) which is derived after dividing the total investment of a mutual fund by the number of investors.


EXCHANGE TRADED FUNDS explained… 

ETFs are passively managed funds that are also taken as a duplicate of passive index funds. These funds usually hold all the stocks in the same weight as they are held by the underlying index.

ETFs are mostly treated as stocks. They are actively traded on the stock exchange and can be freely purchased or sold throughout the trading session.


MUTUAL FUNDS vs ETF explained…

Let us see how these two financial products differ from each other-


Flexibility

  • ETF’s as they are actively traded on stocks, can be purchased and sold anytime and at per investors' convenience. Their market price is available in real-time just like ordinary equity shares.
  • Mutual fund units can only be bought or sold, after placing a request to the fund's house be it online mode or offline mode. NAV (Net Asset Value) presents the price of one unit of a mutual fund.


Fees And Expenses

  • ETFs are replicate of index funds and thus they are also passively managed funds. This means they do not incur high fees and expenses
  • While the situation is reversed in mutual funds, the fund manager actively takes investment decisions on behalf of the investors. As a result, the fund management expenses are higher.


Management

  • ETF’s similar to index funds are passively managed in such a way that they perform to track the performance of their benchmark index.
  • While mutual funds are actively managed by an experienced fund manager who manages the fund in such a way that it outperforms its benchmark index and generates inflation-beating returns.


WHAT TO CHOOSE AND WHY explained…

Both of these investments offer excellent ways to create a diversified investment portfolio that will help generate a good corpus for your goals in the coming days. However, when it comes to choosing one between the two, investors are suggested, first, analyze certain factors like

  • Ease to liquidate the investment
  • Your risk appetite
  • Your investment horizon
  • The tax-saving strategy that you have.
  • Your financial goals.


After you analyze the above factors properly, you can easily choose the best option among the two, for you. ETFs, offer you more flexibility and higher returns in the short run while mutual funds require you to stay invested for a comparatively extended period but help create a corpus for the future. Thus, make sure your investment is purely based on the type of goals you are investing for.


For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.


Happy Investing!


(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).