🕷️ Crawler Inspector

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1. Shard Calculation

Query:

Response:

Calculated Shard: 148 (from laksa113)

2. Crawled Status Check

Query:

curl -X POST \
  'http://laksa148.int.ahrefs:8124/' \
  -H 'Content-Type: text/plain' \
  -H 'X-ClickHouse-Database: crawler3' \
  -H 'Authorization: Basic YXBpOg==' \
  -d 'SELECT getAhrefsURLFromUnparsed(src_unparsed) AS found_url, ifNull(toUnixTimestamp(download_stamp), 0) AS crawl_time, ifNull(toUnixTimestamp(props_url_first_seen), 0) AS first_indexed_time, download_http_code AS http_code, src_unparsed AS src_unparsed, src_root_hash AS src_root_hash, history_drop_reason AS history_drop_reason, meta_title AS meta_title, meta_descriptions AS meta_descriptions, attrs_boilerpipe_text AS attrs_boilerpipe_text, attrs_markdown AS attrs_markdown, attrs_readable_markdown AS attrs_readable_markdown, meta_canonical AS meta_canonical, ml_categories_json AS ml_categories_json, ml_types_json AS ml_types_json, ml_intent_types_json AS ml_intent_types_json, meta_language AS meta_language, attrs_author AS attrs_author, ifNull(toUnixTimestamp(attrs_publish_time), 0) AS attrs_publish_time, ifNull(toUnixTimestamp(attrs_original_publish_time), 0) AS attrs_original_publish_time, ifNull(attrs_is_republished, 0) AS attrs_is_republished, ifNull(attrs_nr_words, 0) AS attrs_nr_words, ifNull(attrs_boilerpipe_nr_words, 0) AS attrs_boilerpipe_nr_words, ifNull(body_ext_links_number, 0) AS body_ext_links_number, ifNull(body_int_links_number, 0) AS body_int_links_number, ifNull(meta_nofollow, 0) AS meta_nofollow, ifNull(meta_noarchive, 0) AS meta_noarchive, ifNull(props_was_rendered, 0) AS props_was_rendered, ifNull(src_redirect, \'\') AS src_redirect, ifNull(download_time_msec, 0) AS download_time_msec, ifNull(download_ttfb_msec, 0) AS download_ttfb_msec, ifNull(download_size, 0) AS download_size FROM crawler3.page_info_local FINAL PREWHERE (src_root_hash, src_unparsed) IN ((getAhrefsRootHashFromUnparsed(getAhrefsUnparsedNoserviceFromURL(\'https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/\')), getAhrefsUnparsedNoserviceFromURL(\'https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/\'))) FORMAT JSONEachRow'

Response:

{"found_url":"https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/","crawl_time":1777037673,"first_indexed_time":1499949673,"http_code":200,"src_unparsed":"com,bankrate!www,\/investing\/mutual-fund-vs-etf-which-is-better\/ s443","src_root_hash":"16841441868536461148","history_drop_reason":null,"meta_title":"ETF Vs. Mutual Fund: Which Is Right For You? | Bankrate","meta_descriptions":["Mutual funds and ETFs can both offer many benefits for your portfolio, including instant diversification at a low cost.","Mutual funds and ETFs can both offer many benefits for your portfolio, including instant diversification at a low cost."],"attrs_boilerpipe_text":"Mutual funds and exchange-traded funds (ETFs) can both offer many benefits for your investment portfolio, including instant diversification at a low cost. But they have some key differences, in particular, how expensive the funds are. Overall,\nETFs hold an edge\nbecause they tend to use passive investing more often and have some tax advantages.\nHere’s what differentiates a mutual fund from an ETF and which is better for your portfolio.\nKey takeaways\nETFs are typically passively managed funds that trade on an exchange. They often have lower fees and can be purchased throughout the trading day.\nMutual funds are usually actively managed funds that are proprietary and may have higher fees. They are priced at the end of the trading day.\nBoth fund types allow investors to buy a broad set of securities with a single share.\nMutual funds vs. ETFs: Similarities and differences\nMutual funds\nremain top dog in terms of total assets, thanks to their prominence in retirement plans such as\n401(k)s\n. U.S. mutual funds had around $21.7 trillion in total financial assets as of the fourth quarter of 2024, compared to about $10.3 trillion in\nETFs\n, according to the St. Louis Fed. But ETFs have been growing quickly in the last decade, as investors are drawn by their low fees and ease of trading.\nBoth types of funds allow you to invest in a diversified portfolio by buying just one security. For example, you can buy an index fund based on\nthe Standard & Poor’s 500 index\n(S&P 500) of top American companies as either a mutual fund or an ETF. Or you could buy a portfolio of bonds with either. Some funds allow you to\nbuy gold\nor all the companies in a certain industry, for example.\nMutual funds: An overview\nMutual funds are an older way of allowing a group of investors to own a share in a larger portfolio. Mutual funds tend to be actively managed, so they’re trying to beat their benchmark index, and may charge higher expenses than ETFs, including the possibility of sales commissions. Mutual funds typically have minimum initial purchase requirements, and they can be purchased only after the market is closed, when their\nnet asset value (NAV)\nis calculated and set.\nETFs: An overview\nETFs are a newer way of allowing investors to own a share in a larger portfolio. ETFs tend to be passively managed, meaning their holdings track a preset index of securities such as the S&P 500 rather than having a portfolio manager picking them. They generally charge low expenses and have no sales commissions. ETFs usually do not have a minimum initial purchase requirement, though some brokers may not allow you to buy fractional shares of them. ETFs are traded during the day like a stock and their price can fluctuate around their net asset value.\nWhether you’re buying a mutual fund or an ETF, you can invest in a diverse selection of assets.\nFeature\nMutual funds\nETFs\nType of assets\nStocks, bonds, gold, etc.\nStocks, bonds, gold, etc.\nType of fund management\nMore actively invested\nMore passively invested\nFund expense ratios\nHigher\nLower\nBrokerage commissions\nOften $0, but may range up to $50\nTypically $0\nSales commissions (loads)\nOften none, but sometimes 1 or 2 percent\nNone\nWhen you can trade\nPriced at the end of the trading day\nCan be purchased throughout the trading day\nTax efficiency\nLower\nHigher\nActive management vs. passive management\nHow a fund actually invests has a lot to do with your costs and potential returns. Some funds engage in what’s called active management, in which the fund’s manager picks and chooses securities to buy and sell, and when to do so. This approach is more typical for mutual funds, though they may also be passively managed.\nThe other approach is called passive investing, and it’s where the fund manager doesn’t select the investments but rather mimics an index that’s already been selected, such as the S&P 500. This approach is more typical of ETFs, though ETFs may sometimes be actively managed.\nSo generally speaking, mutual funds have been actively managed, whereas ETFs have been passive. But these lines have blurred somewhat and it’s possible to find actively managed ETFs and passively managed mutual funds.\nThis difference matters for a couple key reasons: the returns you’re likely to see as an investor and the\nexpense ratio\nyou’re likely to pay.\nFund returns and costs\nHere’s the upshot of the active vs. passive debate:\npassive investing does better most of the time\n. In fact, a recent report from S&P Dow Jones Indices shows that 93 percent of U.S. active managers in large companies were unable to beat the market over a 20-year period ending Dec. 31, 2023.\nYes, the best funds can beat their benchmarks (often the S&P 500) in a given year, but over time it’s tough for active managers to outperform.\nIn passive investing, the goal is not to beat the market, as is usual for active managers. Instead, passive investors are simply looking to\nbe\nthe market. And if passive investing outperforms the vast majority of investors, it also means you can beat most active professional managers, too.\nThat gives an advantage to ETFs, which are typically passively managed, though again some mutual funds are also passively managed. You’ll need to read\nthe fund’s prospectus\nto see.\nActive management has another downside: it tends to cost more than a passively managed fund. The emergence of lower-cost ETFs has helped reduce the expenses in mutual funds as they are forced to compete.\nAs you can see in the chart below, expense ratios on funds have been falling for the past two decades. Expenses for stock mutual funds still remain above those for ETFs, whether you’re comparing a simple average or an asset-weighted average (factoring in how big the fund is).\nThe simple average gives you an idea of what you’d likely pay if you picked funds at random, while the asset-weighted average tells you what a typical investor might actually be paying. So mutual funds are quite a bit more expensive than ETFs, comparing their respective averages.\nFor example, in 2023, an average mutual fund (asset-weighted) cost 0.42 percent of your assets each year. In practical terms, it would cost $42 for every $10,000 you have invested. In contrast, the comparable average index ETF had an expense ratio of just 0.15 percent, or $15 annually for every $10,000 invested.\nBut the details differ when you dig in. If you focus on passively managed stock mutual funds, they’re actually cheaper than passively managed stock ETFs, as you can see in the chart below.\nIn 2023,\nstock index mutual funds\ncharged an average of 0.05 percent (asset-weighted), while a comparable stock index ETF charged 0.15 percent.\nAn actively managed mutual fund may also ding your returns in another way, by running up your tax bill. Because it trades in and out of the market, an actively managed fund recognizes capital gains more frequently than a passively managed fund such as most ETFs. It must pass on some of those taxable\ncapital gains\ndistributions to investors at the end of the year.\nIn addition to these costs, investors in mutual funds may also have to\nwatch out for sales commissions\n, too, which can quickly eat up your principal before you’ve even invested your money. That’s not a cost that’s associated with ETFs — or\nthe best mutual funds\n, for that matter.\nWhether you go with an ETF or mutual fund, be sure to check the expense ratio and any other costs of the fund. Costs are a huge driver of your return, and experts suggest that you focus on those first, especially for index funds, where everyone is tracking the same index anyway.\nCommissions and minimum purchases\nIn the category of commissions, ETF investors are real winners. The big-name brokerages\nhave slashed commissions to zero\non all ETFs offered on their sites. So it won’t cost you anything to trade these funds, though some brokers may impose an early redemption fee. That’s a huge boon for investors, especially if you like to\ndollar-cost average on your purchases\n.\nBut that’s not the case for mutual funds, where some still charge sales commissions (or loads) that might run you 1 or 2 percent of your money but sometimes even more. Fortunately, many good mutual funds no longer charge these fees, and it’s relatively easy to avoid them. Otherwise, you’re paying to enrich the fund-management firm at the expense of your returns.\nAnd brokerages may also charge you a fee for trading mutual funds — some may run nearly $50 per trade — though\nthe best brokers offer many funds without a trading commission\n.\nAs for a minimum purchase amount, ETFs often have an advantage here, too. Usually a broker may require you to buy at least one share of a fund in order to make a purchase, though these days many\nbrokerages allow you to buy fractional shares\n. Even if you have to buy a full share, that might cost you as little as $20 up to perhaps $250, still a relatively small amount.\nIn contrast, some mutual funds may require you to purchase at least $2,500 to get started, if you’re opening your own individual account, with smaller minimum subsequent deposits. Some mutual funds also charge early redemption fees if you sell your position in less than 30 days.\nWhen you can buy mutual funds and ETFs\nThe time and frequency when you can purchase a mutual fund or ETF differs. Mutual funds are priced only at the end of each trading day. While you can place your order at any time, it won’t be filled until the exact price of the fund is tallied up at day’s end. So you won’t know what you’re paying until the transaction is complete. But you’ll always pay the exact net asset value of the fund’s holdings.\nIn contrast, an ETF trades like a stock on an exchange, and you can buy whenever the market is open. You can place your buy or sell order as you would for a stock and see the exact price you pay when the order is executed. Unlike a mutual fund, you may end up paying more or less than the fund’s actual net assets, though the difference is usually negligible.\nThis trading flexibility has helped make ETFs a popular way to invest.\nETF vs. mutual fund: Which one should you choose and why?\nIn many ways mutual funds and ETFs do the same thing, so the better long-term choice depends a lot on what the fund is actually invested in (the specific stocks and bonds, for example). For instance, mutual funds and ETFs based on the\nS&P 500 index\nare largely going to perform the same for you. But actively managed funds may have widely different results, depending on how they’re invested.\nWhere the differences come in, however, are in the fees, commissions and other costs associated with your choice. And in these respects, ETFs have an edge on mutual funds. They also have an edge in terms of their tax efficiency, helping to reduce your overall tax burden.\nWho should consider ETFs:\nInvestors who want to save on fees:\nWhile mutual fund fees have dropped in recent years, ETFs tend to have lower fees.\nSelf-directed investors:\nETFs trade on exchanges, so you can buy them anywhere stocks are sold.\nPassive investors:\nETFs are ideal for buy-and-hold investors seeking long-term exposure to broad funds like those that track the S&P 500.\nTax optimizers:\nETFs can be more tax-efficient, so they may be a better choice for those looking to reduce their tax burdens.\nWho should consider mutual funds:\nInvestors with a 401(k):\nMany employers sponsor a retirement plan with various benefits, such as matching contributions and payroll deductions. However, these plans often invest in mutual funds and don’t have an ETF option.\nThose who prefer actively managed funds:\nMutual funds are often (but not always) actively managed, so they may be a better choice for investors who want fund managers to pick their investments.\nThose who prefer dollar-cost averaging and automatic investments:\n401(k) plans and brokerage accounts often allow automatic contributions to mutual funds. This makes it easy to regularly invest a set amount.\nDo ETFs and mutual funds pay distributions?\nMutual funds may pay capital gains distributions at the end of the year and dividends throughout the year, while ETFs may pay dividends throughout the year. But there’s a difference in these payouts to investors, and ETF investors have an advantage here, too.\nETFs may pay a cash dividend on a quarterly basis. Each share will receive a specific amount, so the more shares you own, the higher your total payout. But not all funds offer dividends, even if they do provide a cash payout. For example, fixed income ETFs technically pay out interest instead.\nETF distributions can be either qualified or non-qualified. The difference between the two depends on how they are taxed and how long the stock within the ETF is held:\nQualified dividends are paid on stock held by the ETF. The stock must be owned for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date. Qualified dividends are taxed at the\ncapital gains tax rate\n.\nNon-qualified dividends are taxed at\nordinary income rates\n.\nMutual funds may also issue a payout, and it may be paid regularly throughout the year. Investors may also be able to take advantage of the rules surrounding qualified dividends to achieve a lower tax rate on payouts.\nBut mutual funds may also expose investors to an additional tax complication. That’s because mutual funds are required to distribute their realized capital gains at the end of the year. While you receive the payout in cash, you may then have to turn around and pay taxes on it to the IRS. These tax considerations don’t apply to mutual funds held in tax-advantaged accounts.\nEven if the mutual fund isn’t trading a bunch of stocks as part of its strategy, the act of redeeming shares for outgoing investors can force managers to sell shares of the investments in the fund, potentially creating a capital gain.\nAdditionally, if you buy the fund late in the year, you could still be paying a tax bill for events that happened before you made the investment.\nIn terms of safety, neither the mutual fund nor the ETF is safer than the other due to its structure. Safety is determined by what the fund itself owns. Stocks are usually riskier than bonds, and corporate bonds come with somewhat more risk than U.S. government bonds. But higher risk (especially if it’s diversified) may deliver higher long-term returns.\nThat’s why it’s critical that you understand the characteristics of your investments, and not just whether the fund is an ETF or mutual fund. A mutual fund or ETF tracking the same index will deliver about the same returns, so you’re not exposed to more risk one way or the other.\nBottom line\nFor many different purposes, an ETF is a better option for investors because it offers some tax advantages, low commissions and easy tradability. But in other specific circumstances, notably for stock index funds, mutual funds can actually be cheaper than ETFs, and if they’re held in a tax-advantaged account, their tax implications are irrelevant anyway. Either way, you need to know what your funds are invested in and how they help you achieve your financial goals.\nEditorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.\nDid you find this page helpful?\nInfo Icon\nHelp us improve our content","attrs_markdown":"[Skip to Main Content](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#main-content)\n\n- [Banking](https:\/\/www.bankrate.com\/banking\/)\n  All\n  \n  Banking\n  \n  Checking & savings\n  \n  CDs\n  \n  Money market\n  \n  Banks\n  \n  [Explore all banking resources](https:\/\/www.bankrate.com\/banking\/)\n  \n  Banking\n  \n  Compare accounts\n  \n  - [Best high-yield savings accounts](https:\/\/www.bankrate.com\/banking\/savings\/best-high-yield-interests-savings-accounts\/)\n  - [Best checking accounts](https:\/\/www.bankrate.com\/banking\/checking\/best-checking-accounts\/)\n  - [Best free checking accounts](https:\/\/www.bankrate.com\/banking\/checking\/best-free-checking-accounts\/)\n  \n  Get guidance\n  \n  - [Savings calculator](https:\/\/www.bankrate.com\/banking\/savings\/simple-savings-calculator\/)\n  - 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[Best investments](https:\/\/www.bankrate.com\/investing\/best-investments\/)\n  - [Best index funds](https:\/\/www.bankrate.com\/investing\/best-index-funds\/)\n  - [Best long-term investments](https:\/\/www.bankrate.com\/investing\/best-long-term-investments\/)\n  - [Best short-term investments](https:\/\/www.bankrate.com\/investing\/best-short-term-investments\/)\n  \n  Get guidance\n  \n  - [All investing calculators](https:\/\/www.bankrate.com\/investing\/calculators\/)\n  - [Brokerage reviews](https:\/\/www.bankrate.com\/investing\/brokerage-reviews\/)\n  - [Robo-advisor reviews](https:\/\/www.bankrate.com\/investing\/roboadvisor-reviews\/)\n  - [Low risk investments](https:\/\/www.bankrate.com\/investing\/low-risk-investments\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/3cfd293f15\/passive-income-ideas-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Passive income ideas 26 min read](https:\/\/www.bankrate.com\/investing\/passive-income-ideas\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/3d6f458d84\/how-to-start-investing-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to start investing 7 min read](https:\/\/www.bankrate.com\/investing\/how-to-start-investing\/)\n  \n  Compare plans\n  \n  - [Best retirement plans](https:\/\/www.bankrate.com\/retirement\/best-retirement-plans\/)\n  - [Best IRA accounts](https:\/\/www.bankrate.com\/retirement\/best-ira-accounts\/)\n  - [Best Roth IRA accounts](https:\/\/www.bankrate.com\/investing\/best-roth-ira\/)\n  - [Best 401(k) rollover options](https:\/\/www.bankrate.com\/retirement\/best-places-to-rollover-401k\/)\n  \n  Get guidance\n  \n  - [401(k) calculator](https:\/\/www.bankrate.com\/retirement\/401-k-calculator\/)\n  - [Retirement plan calculator](https:\/\/www.bankrate.com\/retirement\/retirement-plan-calculator\/)\n  - [Roth IRA calculator](https:\/\/www.bankrate.com\/retirement\/roth-ira-plan-calculator\/)\n  - [All retirement calculators](https:\/\/www.bankrate.com\/retirement\/calculators\/)\n  - [Retirement resources](https:\/\/www.bankrate.com\/retirement\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/59a3f533a8\/best-worst-states-for-retirement-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Best & worst states for retirement 6 min read](https:\/\/www.bankrate.com\/retirement\/best-and-worst-states-for-retirement\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/a6b1dc15ca\/how-to-save-for-retirement-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to save for retirement 15 min read](https:\/\/www.bankrate.com\/retirement\/how-to-save-for-retirement\/)\n  \n  Finding an advisor\n  \n  - [Find a financial advisor](https:\/\/www.bankrate.com\/investing\/financial-advisors\/financial-advisor-matching\/)\n  - [Best financial advisors](https:\/\/www.bankrate.com\/investing\/financial-advisors\/best-financial-advisors\/)\n  - [How to choose a financial advisor](https:\/\/www.bankrate.com\/investing\/financial-advisors\/how-to-choose-a-financial-advisor\/)\n  - [Financial planner vs advisor](https:\/\/www.bankrate.com\/investing\/financial-advisors\/financial-advisor-vs-financial-planner\/)\n  \n  Get guidance\n  \n  - [What is financial planning?](https:\/\/www.bankrate.com\/investing\/financial-advisors\/what-is-financial-planning\/)\n  - [What is a fiduciary?](https:\/\/www.bankrate.com\/investing\/financial-advisors\/what-is-a-fiduciary\/)\n  - [What is a CFP?](https:\/\/www.bankrate.com\/investing\/financial-advisors\/what-is-a-certified-financial-planner\/)\n  - [What is wealth management?](https:\/\/www.bankrate.com\/investing\/financial-advisors\/what-is-wealth-management\/)\n  - [Financial advisor resources](https:\/\/www.bankrate.com\/investing\/financial-advisors\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/1cdbf65950\/what-is-wealth-management-s.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) When to get an advisor 4 min read](https:\/\/www.bankrate.com\/investing\/financial-advisors\/when-to-get-a-financial-advisor\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/38750a2d5a\/what-is-a-certified-financial-planner-s.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Pros & cons of financial advising 7 min read](https:\/\/www.bankrate.com\/investing\/financial-advisors\/pros-cons-financial-advisor\/)\n  \n  [Explore all investing resources](https:\/\/www.bankrate.com\/investing\/)\n- [Credit cards](https:\/\/www.bankrate.com\/credit-cards\/)\n  All\n  \n  Credit cards\n  \n  Cards by category\n  \n  Cards by credit\n  \n  Tools & reviews\n  \n  Guides & resources\n  \n  [Explore all credit cards resources](https:\/\/www.bankrate.com\/credit-cards\/)\n  \n  Credit cards\n  \n  Compare cards\n  \n  - [Best cards of 2026](https:\/\/www.bankrate.com\/credit-cards\/best-credit-cards\/)\n  - [Best cash back cards](https:\/\/www.bankrate.com\/credit-cards\/cash-back\/best-cash-back-cards\/)\n  - [Best balance transfer cards](https:\/\/www.bankrate.com\/credit-cards\/balance-transfer\/best-balance-transfer-cards\/)\n  - [Best 0% APR cards](https:\/\/www.bankrate.com\/credit-cards\/zero-interest\/best-zero-interest-cards\/)\n  - [Best travel cards](https:\/\/www.bankrate.com\/credit-cards\/travel\/best-travel-cards\/)\n  - [Best rewards cards](https:\/\/www.bankrate.com\/credit-cards\/rewards\/best-rewards-cards\/)\n  - [Best business cards](https:\/\/www.bankrate.com\/credit-cards\/business\/best-business-cards\/)\n  - [Best sign up bonus cards](https:\/\/www.bankrate.com\/credit-cards\/rewards\/best-bonus-offer-cards\/)\n  \n  Find my matches\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/4f02ac6944\/cardmatch-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) CardMatch™ Get personalized card recommendations](https:\/\/www.bankrate.com\/credit-cards\/tools\/cardmatch\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/10ad7295ae\/card-comparison-tool-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Card comparison tool Compare credit cards side-by-side](https:\/\/www.bankrate.com\/credit-cards\/tools\/compare\/)\n  \n  See your card matches\n  \n  Answer a few quick questions and we’ll show you your top credit card options.\n  \n  [Find my matches](https:\/\/www.bankrate.com\/credit-cards\/tools\/cardmatch\/)\n  \n  Compare cards\n  \n  - [Excellent credit](https:\/\/www.bankrate.com\/credit-cards\/rewards\/best-for-excellent-credit\/)\n  - [Good credit](https:\/\/www.bankrate.com\/credit-cards\/building-credit\/best-for-good-credit\/)\n  - [Fair credit](https:\/\/www.bankrate.com\/credit-cards\/building-credit\/best-for-fair-credit\/)\n  - [Bad credit](https:\/\/www.bankrate.com\/credit-cards\/bad-credit\/best-for-bad-credit\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/2e8651b174\/how-to-build-credit-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to build credit 7 min read](https:\/\/www.bankrate.com\/personal-finance\/credit\/how-to-build-credit-fast\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/5a53191033\/best-cards-for-building-credit-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Best cards for building credit Find out which credit cards could help](https:\/\/www.bankrate.com\/credit-cards\/building-credit\/best-for-no-credit-history\/)\n  \n  See what the experts say\n  \n  Read in-depth credit card reviews to find out which cards have the best perks and more.\n  \n  [Read card reviews](https:\/\/www.bankrate.com\/credit-cards\/reviews\/)\n  \n  Get guidance\n  \n  - [Credit card payoff calculator](https:\/\/www.bankrate.com\/credit-cards\/tools\/credit-card-payoff-calculator\/)\n  - [Balance transfer calculator](https:\/\/www.bankrate.com\/credit-cards\/tools\/credit-card-balance-transfer-calculator\/)\n  - [Credit utilization calculator](https:\/\/www.bankrate.com\/credit-cards\/tools\/credit-utilization-calculator\/)\n  - [Points and miles calculator](https:\/\/www.bankrate.com\/credit-cards\/tools\/points-and-miles-calculator\/)\n  - [All credit card calculators](https:\/\/www.bankrate.com\/credit-cards\/tools\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/43548bf9cd\/spender-type-tool-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Spender type tool Find cards that fit your needs](https:\/\/www.bankrate.com\/credit-cards\/tools\/spender-type-tool\/)\n  \n  Get advice\n  \n  - [Credit cards 101](https:\/\/www.bankrate.com\/credit-cards\/advice\/)\n  - [Balance transfer advice](https:\/\/www.bankrate.com\/credit-cards\/balance-transfer\/)\n  - [Zero interest credit cards](https:\/\/www.bankrate.com\/credit-cards\/zero-interest\/)\n  - [Rewards credit card advice](https:\/\/www.bankrate.com\/credit-cards\/rewards\/)\n  - [Cash back credit card advice](https:\/\/www.bankrate.com\/credit-cards\/cash-back\/)\n  - [Travel credit card advice](https:\/\/www.bankrate.com\/credit-cards\/travel\/)\n  - [Business credit card advice](https:\/\/www.bankrate.com\/credit-cards\/business\/)\n  \n  Build credit\n  \n  - [Advice for bad credit](https:\/\/www.bankrate.com\/credit-cards\/bad-credit\/)\n  - [Rebuilding credit score](https:\/\/www.bankrate.com\/credit-cards\/building-credit\/)\n  \n  [Explore all credit cards resources](https:\/\/www.bankrate.com\/credit-cards\/)\n- [Loans](https:\/\/www.bankrate.com\/loans\/)\n  All\n  \n  Loans\n  \n  Personal loans\n  \n  Auto loans\n  \n  Student loans\n  \n  Small business loans\n  \n  [Explore all loans resources](https:\/\/www.bankrate.com\/loans\/)\n  \n  Loans\n  \n  Compare lenders\n  \n  - [Best personal loans](https:\/\/www.bankrate.com\/loans\/personal-loans\/rates\/)\n  - [Best personal loans for bad credit](https:\/\/www.bankrate.com\/loans\/personal-loans\/bad-credit-loans\/)\n  - [Best debt consolidation loans](https:\/\/www.bankrate.com\/loans\/personal-loans\/debt-consolidation-loans\/)\n  - [Best home improvement loans](https:\/\/www.bankrate.com\/loans\/home-improvement\/rates\/)\n  \n  Get guidance\n  \n  - [Personal loan resources](https:\/\/www.bankrate.com\/loans\/personal-loans\/)\n  - [Personal loan lender reviews](https:\/\/www.bankrate.com\/loans\/personal-loans\/reviews\/)\n  - [Personal loans calculator](https:\/\/www.bankrate.com\/loans\/personal-loans\/personal-loan-calculator\/)\n  - [Average personal loan interest rates](https:\/\/www.bankrate.com\/loans\/personal-loans\/average-personal-loan-rates\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/38750a2d5a\/what-is-a-certified-financial-planner-s.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Personal loan basics 9 min read](https:\/\/www.bankrate.com\/loans\/personal-loans\/what-is-a-personal-loan\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/4c26764452\/how-to-start-saving.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to get a personal loan 11 min read](https:\/\/www.bankrate.com\/loans\/personal-loans\/how-to-get-personal-loan\/)\n  \n  Compare lenders\n  \n  - [Best auto loans](https:\/\/www.bankrate.com\/loans\/auto-loans\/rates\/)\n  - [Best auto loan refinance rates](https:\/\/www.bankrate.com\/loans\/auto-loans\/refinance-rates\/)\n  - [Best car loans for bad credit](https:\/\/www.bankrate.com\/loans\/auto-loans\/bad-credit-loans\/)\n  \n  Get guidance\n  \n  - [Auto loan resources](https:\/\/www.bankrate.com\/loans\/auto-loans\/)\n  - [Auto loan lender reviews](https:\/\/www.bankrate.com\/loans\/auto-loans\/reviews\/)\n  - [Auto loan calculator](https:\/\/www.bankrate.com\/loans\/auto-loans\/auto-loan-calculator\/)\n  - [Auto loan refinancing guide](https:\/\/www.bankrate.com\/loans\/auto-loans\/how-to-refinance-car-loan\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/d1a328a134\/auto-loan-refinancing-guide-nav.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to get the best auto loan rate 10 min read](https:\/\/www.bankrate.com\/loans\/auto-loans\/how-to-get-the-best-auto-loan-rate\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/720x720\/c481afa0d2\/auto-loan-refinancing-guide-s.jpg\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Auto loan basics 5 min read](https:\/\/www.bankrate.com\/loans\/auto-loans\/what-is-an-auto-loan\/)\n  \n  Compare lenders\n  \n  - [Student loan rates](https:\/\/www.bankrate.com\/loans\/student-loans\/rates\/)\n  - [Student loan refinancing rates](https:\/\/www.bankrate.com\/loans\/student-loans\/refinance-rates\/)\n  - [Best bad credit student loans](https:\/\/www.bankrate.com\/loans\/student-loans\/bad-credit-loans\/)\n  \n  Get guidance\n  \n  - [Student loan resources](https:\/\/www.bankrate.com\/loans\/student-loans\/)\n  - [Student loan lender reviews](https:\/\/www.bankrate.com\/loans\/student-loans\/reviews\/)\n  - [Student loan calculator](https:\/\/www.bankrate.com\/loans\/student-loans\/student-loan-calculator\/)\n  - [Student loan refinance calculator](https:\/\/www.bankrate.com\/loans\/student-loans\/student-loan-refinance-calculator\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/3d6f458d84\/how-to-start-investing-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) Private student loan basics 10 min read](https:\/\/www.bankrate.com\/loans\/student-loans\/private-student-loans-guide\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/4c26764452\/how-to-start-saving.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to get a student loan 11 min read](https:\/\/www.bankrate.com\/loans\/student-loans\/how-to-get-student-loan\/)\n  \n  Compare lenders\n  \n  - [Best small business loans](https:\/\/www.bankrate.com\/loans\/small-business\/best-small-business-loans\/)\n  - [Bad credit small business loans](https:\/\/www.bankrate.com\/loans\/small-business\/bad-credit-business-loans\/)\n  - [Business lines of credit](https:\/\/www.bankrate.com\/loans\/small-business\/business-line-of-credit\/)\n  - [Small business loan banks](https:\/\/www.bankrate.com\/loans\/small-business\/best-banks-for-small-business-loans\/)\n  \n  Get guidance\n  \n  - [Small business loans resources](https:\/\/www.bankrate.com\/loans\/small-business\/)\n  - [Small business loan reviews](https:\/\/www.bankrate.com\/loans\/small-business\/reviews\/)\n  - [Small business loan calculator](https:\/\/www.bankrate.com\/loans\/small-business\/business-loan-calculator\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/4c26764452\/how-to-start-saving.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How small business loans work 9 min read](https:\/\/www.bankrate.com\/loans\/small-business\/how-do-small-business-loans-work\/)\n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/38750a2d5a\/what-is-a-certified-financial-planner-s.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to get a business loan 9 min read](https:\/\/www.bankrate.com\/loans\/small-business\/how-to-get-a-business-loan\/)\n  \n  [Explore all loans resources](https:\/\/www.bankrate.com\/loans\/)\n- [Home equity](https:\/\/www.bankrate.com\/home-equity\/)\n  All\n  \n  Home equity\n  \n  HELOC\n  \n  Home equity loans\n  \n  [Explore all home equity resources](https:\/\/www.bankrate.com\/home-equity\/)\n  \n  Home equity\n  \n  HELOC\n  \n  A HELOC is a variable-rate line of credit that lets you borrow funds for a set period and repay them later.\n  \n  [HELOC Rates](https:\/\/www.bankrate.com\/home-equity\/heloc-rates\/)\n  \n  Home equity basics\n  \n  - [Best HELOC lenders](https:\/\/www.bankrate.com\/home-equity\/heloc-lenders\/)\n  - [HELOC calculator](https:\/\/www.bankrate.com\/home-equity\/heloc-calculator\/)\n  - [What is a HELOC?](https:\/\/www.bankrate.com\/home-equity\/what-is-heloc\/)\n  - [Pros and cons of HELOCs](https:\/\/www.bankrate.com\/home-equity\/pros-cons-of-home-equity-lines\/)\n  - [Home equity lender reviews](https:\/\/www.bankrate.com\/home-equity\/reviews\/)\n  \n  - [![](https:\/\/www.bankrate.com\/f\/102997\/1440x1440\/e9e92b7729\/home-equity-heloc-guide-nav-imagery.png\/m\/50x50\/filters:quality\$90\$:format\$webp\$) What is home equity? 8 min read](https:\/\/www.bankrate.com\/home-equity\/what-is-home-equity\/)\n  - [![Home purchase](https:\/\/www.bankrate.com\/f\/102997\/1280x720\/98576f9f53\/home-purchase.jpeg\/m\/50x50\/filters:quality\$90\$:format\$webp\$) How to calculate home equity 6 min read](https:\/\/www.bankrate.com\/home-equity\/how-to-calculate-equity-in-your-home\/)\n  \n  Home equity loans\n  \n  Home equity loans let you borrow a lump sum at a fixed rate, based on how much of the home you own outright.\n  \n  [Home equity loan rates](https:\/\/www.bankrate.com\/home-equity\/home-equity-loan-rates\/)\n  \n  Get guidance\n  \n  - 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[Investing](https:\/\/www.bankrate.com\/investing\/)  ›\n2. ETF vs. mutual fund: Which is the better investment?\n\nAdvertiser Disclosure\n\n# ETF vs. mutual fund: Which is the better investment?\n![James Royal, Ph.D.](https:\/\/www.bankrate.com\/2021\/10\/26151853\/James-Royal-headshot-scaled-square.jpg?auto=webp&quality=85&width=24&height=24&fit=cover&enable=upscale&crop=1:1,smart) ![Lisa Dammeyer](https:\/\/www.bankrate.com\/brp\/2024\/09\/24170827\/Lisa-Dammeyer-1.jpg?auto=webp&quality=85&width=24&height=24&fit=cover&enable=upscale&crop=1:1,smart) ![Kenneth Chavis IV](https:\/\/www.bankrate.com\/brp\/2025\/01\/24125453\/VCM-Headshot.jpg?auto=webp&quality=85&width=24&height=24&fit=cover&enable=upscale&crop=1:1,smart)\n\nWritten by\n\nJames Royal, Ph.D.\n\n,\n\n![](https:\/\/www.bankrate.com\/2021\/10\/26151853\/James-Royal-headshot-scaled-square.jpg?auto=webp&quality=85&width=64&height=64&fit=cover&enable=upscale&crop=1:1,smart)\n\n[James Royal, Ph.D.](https:\/\/www.bankrate.com\/authors\/james-royal\/)\n\nFormer Principal Writer, Investing and Wealth Management\n\nExpertise\n\n- •  Investing\n- •  Wealth management\n\nFormer Bankrate principal writer and editor James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.\n\n[Read more](https:\/\/www.bankrate.com\/authors\/james-royal\/)\n\n- [Connect with James Royal, Ph.D. on Twitter](https:\/\/twitter.com\/JimRoyalPhD)\n- [Connect with James Royal, Ph.D. on LinkedIn](https:\/\/www.linkedin.com\/in\/james-royal-phd-809b929\/)\n- [Get in contact with James Royal, Ph.D. via Email](mailto:jroyal@redventures.com)\n\nClose\n\n[James Royal, Ph.D.](https:\/\/www.bankrate.com\/authors\/james-royal\/),\n\nEdited by\n\nLisa Dammeyer\n\n,\n\n![](https:\/\/www.bankrate.com\/brp\/2024\/09\/24170827\/Lisa-Dammeyer-1.jpg?auto=webp&quality=85&width=64&height=64&fit=cover&enable=upscale&crop=1:1,smart)\n\n[Lisa Dammeyer](https:\/\/www.bankrate.com\/authors\/lisa-dammeyer\/)\n\nFormer Editor, Investing\n\nExpertise\n\n- •  Investing\n- •  Retirement planning\n\nLisa Dammeyer is a former investing editor at Bankrate. She has more than six years of experience distilling down complex topics for everyday people.\n\n[Read more](https:\/\/www.bankrate.com\/authors\/lisa-dammeyer\/)\n\nClose\n\n[Lisa Dammeyer](https:\/\/www.bankrate.com\/authors\/lisa-dammeyer\/),\n\nReviewed by\n\nKenneth Chavis IV\n\n,\n\n![](https:\/\/www.bankrate.com\/brp\/2025\/01\/24125453\/VCM-Headshot.jpg?auto=webp&quality=85&width=64&height=64&fit=cover&enable=upscale&crop=1:1,smart)\n\n[Kenneth Chavis IV](https:\/\/www.bankrate.com\/authors\/kenneth-chavis-iv\/)\n\nSenior wealth advisor at Versant Capital Management\n\nExpertise\n\n- •  Investing and retirement\n- •  Mortgages and real estate\n\nKenneth Chavis IV is a senior wealth counselor at Versant Capital Management who provides investment management, complex wealth strategy, financial planning and tax advice to business owners, executives, medical doctors, and more.\n\n[Read more](https:\/\/www.bankrate.com\/authors\/kenneth-chavis-iv\/)\n\n[About our review board](https:\/\/www.bankrate.com\/financial-review-board\/)\n\nClose\n\n[Kenneth Chavis IV](https:\/\/www.bankrate.com\/authors\/kenneth-chavis-iv\/),\n\nExpert verified\n\nHow is this page expert verified?\n\nAt Bankrate, we take the accuracy of our content seriously.\n\n“Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced.\n\nTheir reviews hold us accountable for publishing high-quality and trustworthy content.\n\n[About our Review Board](https:\/\/www.bankrate.com\/financial-review-board\/)\n\nClose\n\n[Expert verified](https:\/\/www.bankrate.com\/financial-review-board\/)\n\nPublished on March 25, 2025 \\| 10 min read\n\nBankrate is always editorially independent. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money . Our Bankrate promise is to ensure everything we publish is objective, accurate and trustworthy.\n\n![A woman works on her laptop while holding her phone and looking at papers.](https:\/\/www.bankrate.com\/brp\/2024\/04\/24160259\/mutual-funds-vs-etfs.jpg?auto=webp&optimize=high&crop=16:9)\n\nFRAME STUDIO\/Getty Images\n\nTable of contents\n\n- [Mutual funds vs. ETFs: Similarities and differences](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#mutual-funds-vs-etfs)\n- [ETF vs. mutual fund: Which one should you choose and why?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#etf-vs-mutual-fund)\n- [Do ETFs and mutual funds pay distributions?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#pay-distributions)\n- [Mutual fund vs. ETF: Which one is safer?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#which-one-is-safer)\n\nTable of contents\n\nBack to top\n\nMutual funds and exchange-traded funds (ETFs) can both offer many benefits for your investment portfolio, including instant diversification at a low cost. But they have some key differences, in particular, how expensive the funds are. Overall, [ETFs hold an edge](https:\/\/www.bankrate.com\/investing\/what-are-etfs\/) because they tend to use passive investing more often and have some tax advantages.\n\nHere’s what differentiates a mutual fund from an ETF and which is better for your portfolio.\n\n## Key takeaways\n- ETFs are typically passively managed funds that trade on an exchange. They often have lower fees and can be purchased throughout the trading day.\n- Mutual funds are usually actively managed funds that are proprietary and may have higher fees. They are priced at the end of the trading day.\n- Both fund types allow investors to buy a broad set of securities with a single share.\n## Mutual funds vs. ETFs: Similarities and differences\n[Mutual funds](https:\/\/www.bankrate.com\/investing\/guide-to-mutual-funds\/) remain top dog in terms of total assets, thanks to their prominence in retirement plans such as[401(k)s](https:\/\/www.bankrate.com\/retirement\/401k\/). U.S. mutual funds had around \\$21.7 trillion in total financial assets as of the fourth quarter of 2024, compared to about \\$10.3 trillion in[ETFs](https:\/\/www.bankrate.com\/investing\/what-are-etfs\/), according to the St. Louis Fed. But ETFs have been growing quickly in the last decade, as investors are drawn by their low fees and ease of trading.\n\nBoth types of funds allow you to invest in a diversified portfolio by buying just one security. For example, you can buy an index fund based on [the Standard & Poor’s 500 index](https:\/\/www.bankrate.com\/investing\/how-to-buy-sp-500-index-fund\/) (S\\&P 500) of top American companies as either a mutual fund or an ETF. Or you could buy a portfolio of bonds with either. Some funds allow you to [buy gold](https:\/\/www.bankrate.com\/investing\/ways-to-buy-sell-gold\/) or all the companies in a certain industry, for example.\n\n### Mutual funds: An overview\nMutual funds are an older way of allowing a group of investors to own a share in a larger portfolio. Mutual funds tend to be actively managed, so they’re trying to beat their benchmark index, and may charge higher expenses than ETFs, including the possibility of sales commissions. Mutual funds typically have minimum initial purchase requirements, and they can be purchased only after the market is closed, when their [net asset value (NAV)](https:\/\/www.bankrate.com\/investing\/what-is-net-asset-value\/) is calculated and set.\n\n### ETFs: An overview\nETFs are a newer way of allowing investors to own a share in a larger portfolio. ETFs tend to be passively managed, meaning their holdings track a preset index of securities such as the S\\&P 500 rather than having a portfolio manager picking them. They generally charge low expenses and have no sales commissions. ETFs usually do not have a minimum initial purchase requirement, though some brokers may not allow you to buy fractional shares of them. ETFs are traded during the day like a stock and their price can fluctuate around their net asset value.\n\nWhether you’re buying a mutual fund or an ETF, you can invest in a diverse selection of assets.\n\n| Feature | Mutual funds | ETFs |\n|---|---|---|\n| **Type of assets** | Stocks, bonds, gold, etc. | Stocks, bonds, gold, etc. |\n| **Type of fund management** | More actively invested | More passively invested |\n| **Fund expense ratios** | Higher | Lower |\n| **Brokerage commissions** | Often \\$0, but may range up to \\$50 | Typically \\$0 |\n| **Sales commissions (loads)** | Often none, but sometimes 1 or 2 percent | None |\n| **When you can trade** | Priced at the end of the trading day | Can be purchased throughout the trading day |\n| **Tax efficiency** | Lower | Higher |\n\n![](https:\/\/navi.cohesionapps.com\/display?write_key=wk_2M3TlVcWbz8i1RTZjLkSmbWfyQC&adId=e857f17b3e&req=https%3A%2F%2Fwww.bankrate.com%2Finvesting%2Fmutual-fund-vs-etf-which-is-better%2F&ref=)\n\n### Active management vs. passive management\nHow a fund actually invests has a lot to do with your costs and potential returns. Some funds engage in what’s called active management, in which the fund’s manager picks and chooses securities to buy and sell, and when to do so. This approach is more typical for mutual funds, though they may also be passively managed.\n\nThe other approach is called passive investing, and it’s where the fund manager doesn’t select the investments but rather mimics an index that’s already been selected, such as the S\\&P 500. This approach is more typical of ETFs, though ETFs may sometimes be actively managed.\n\nSo generally speaking, mutual funds have been actively managed, whereas ETFs have been passive. But these lines have blurred somewhat and it’s possible to find actively managed ETFs and passively managed mutual funds.\n\nThis difference matters for a couple key reasons: the returns you’re likely to see as an investor and the [expense ratio](https:\/\/www.bankrate.com\/investing\/what-is-an-expense-ratio\/) you’re likely to pay.\n\n### Fund returns and costs\nHere’s the upshot of the active vs. passive debate: [passive investing does better most of the time](https:\/\/www.bankrate.com\/investing\/active-versus-passive\/). In fact, a recent report from S\\&P Dow Jones Indices shows that 93 percent of U.S. active managers in large companies were unable to beat the market over a 20-year period ending Dec. 31, 2023.\n\nYes, the best funds can beat their benchmarks (often the S\\&P 500) in a given year, but over time it’s tough for active managers to outperform.\n\nIn passive investing, the goal is not to beat the market, as is usual for active managers. Instead, passive investors are simply looking to *be* the market. And if passive investing outperforms the vast majority of investors, it also means you can beat most active professional managers, too.\n\nThat gives an advantage to ETFs, which are typically passively managed, though again some mutual funds are also passively managed. You’ll need to read the fund’s prospectus to see.\n\nActive management has another downside: it tends to cost more than a passively managed fund. The emergence of lower-cost ETFs has helped reduce the expenses in mutual funds as they are forced to compete.\n\nAs you can see in the chart below, expense ratios on funds have been falling for the past two decades. Expenses for stock mutual funds still remain above those for ETFs, whether you’re comparing a simple average or an asset-weighted average (factoring in how big the fund is).\n\nThe simple average gives you an idea of what you’d likely pay if you picked funds at random, while the asset-weighted average tells you what a typical investor might actually be paying. So mutual funds are quite a bit more expensive than ETFs, comparing their respective averages.\n\nFor example, in 2023, an average mutual fund (asset-weighted) cost 0.42 percent of your assets each year. In practical terms, it would cost \\$42 for every \\$10,000 you have invested. In contrast, the comparable average index ETF had an expense ratio of just 0.15 percent, or \\$15 annually for every \\$10,000 invested.\n\nBut the details differ when you dig in. If you focus on passively managed stock mutual funds, they’re actually cheaper than passively managed stock ETFs, as you can see in the chart below.\n\nIn 2023, [stock index mutual funds](https:\/\/www.bankrate.com\/investing\/best-index-funds\/) charged an average of 0.05 percent (asset-weighted), while a comparable stock index ETF charged 0.15 percent.\n\nAn actively managed mutual fund may also ding your returns in another way, by running up your tax bill. Because it trades in and out of the market, an actively managed fund recognizes capital gains more frequently than a passively managed fund such as most ETFs. It must pass on some of those taxable [capital gains](https:\/\/www.bankrate.com\/investing\/long-term-capital-gains-tax\/) distributions to investors at the end of the year.\n\nIn addition to these costs, investors in mutual funds may also have to [watch out for sales commissions](https:\/\/www.bankrate.com\/investing\/load-vs-no-load-mutual-funds\/), too, which can quickly eat up your principal before you’ve even invested your money. That’s not a cost that’s associated with ETFs — or [the best mutual funds](https:\/\/www.bankrate.com\/investing\/best-mutual-funds\/), for that matter.\n\nWhether you go with an ETF or mutual fund, be sure to check the expense ratio and any other costs of the fund. Costs are a huge driver of your return, and experts suggest that you focus on those first, especially for index funds, where everyone is tracking the same index anyway.\n\n### Commissions and minimum purchases\nIn the category of commissions, ETF investors are real winners. The big-name brokerages [have slashed commissions to zero](https:\/\/www.bankrate.com\/investing\/commission-free-trading-what-brokers-should-offer-next\/) on all ETFs offered on their sites. So it won’t cost you anything to trade these funds, though some brokers may impose an early redemption fee. That’s a huge boon for investors, especially if you like to [dollar-cost average on your purchases](https:\/\/www.bankrate.com\/investing\/dollar-cost-averaging-what-it-is-avoids-timing-market\/).\n\nBut that’s not the case for mutual funds, where some still charge sales commissions (or loads) that might run you 1 or 2 percent of your money but sometimes even more. Fortunately, many good mutual funds no longer charge these fees, and it’s relatively easy to avoid them. Otherwise, you’re paying to enrich the fund-management firm at the expense of your returns.\n\nAnd brokerages may also charge you a fee for trading mutual funds — some may run nearly \\$50 per trade — though [the best brokers offer many funds without a trading commission](https:\/\/www.bankrate.com\/investing\/best-online-brokers\/).\n\nAs for a minimum purchase amount, ETFs often have an advantage here, too. Usually a broker may require you to buy at least one share of a fund in order to make a purchase, though these days many [brokerages allow you to buy fractional shares](https:\/\/www.bankrate.com\/investing\/best-brokers-fractional-share-investing\/). Even if you have to buy a full share, that might cost you as little as \\$20 up to perhaps \\$250, still a relatively small amount.\n\nIn contrast, some mutual funds may require you to purchase at least \\$2,500 to get started, if you’re opening your own individual account, with smaller minimum subsequent deposits. Some mutual funds also charge early redemption fees if you sell your position in less than 30 days.\n\n### When you can buy mutual funds and ETFs\nThe time and frequency when you can purchase a mutual fund or ETF differs. Mutual funds are priced only at the end of each trading day. While you can place your order at any time, it won’t be filled until the exact price of the fund is tallied up at day’s end. So you won’t know what you’re paying until the transaction is complete. But you’ll always pay the exact net asset value of the fund’s holdings.\n\nIn contrast, an ETF trades like a stock on an exchange, and you can buy whenever the market is open. You can place your buy or sell order as you would for a stock and see the exact price you pay when the order is executed. Unlike a mutual fund, you may end up paying more or less than the fund’s actual net assets, though the difference is usually negligible.\n\nThis trading flexibility has helped make ETFs a popular way to invest.\n\n![](https:\/\/navi.cohesionapps.com\/display?write_key=wk_2M3TlVcWbz8i1RTZjLkSmbWfyQC&adId=61eb82035c&req=https%3A%2F%2Fwww.bankrate.com%2Finvesting%2Fmutual-fund-vs-etf-which-is-better%2F&ref=)\n\n## ETF vs. mutual fund: Which one should you choose and why?\nIn many ways mutual funds and ETFs do the same thing, so the better long-term choice depends a lot on what the fund is actually invested in (the specific stocks and bonds, for example). For instance, mutual funds and ETFs based on the [S\\&P 500 index](https:\/\/www.bankrate.com\/investing\/what-is-sp-500\/) are largely going to perform the same for you. But actively managed funds may have widely different results, depending on how they’re invested.\n\nWhere the differences come in, however, are in the fees, commissions and other costs associated with your choice. And in these respects, ETFs have an edge on mutual funds. They also have an edge in terms of their tax efficiency, helping to reduce your overall tax burden.\n\n**Who should consider ETFs:**\n\n- **Investors who want to save on fees:** While mutual fund fees have dropped in recent years, ETFs tend to have lower fees.\n- **Self-directed investors:** ETFs trade on exchanges, so you can buy them anywhere stocks are sold.\n- **Passive investors:** ETFs are ideal for buy-and-hold investors seeking long-term exposure to broad funds like those that track the S\\&P 500.\n- **Tax optimizers:** ETFs can be more tax-efficient, so they may be a better choice for those looking to reduce their tax burdens.\n\n**Who should consider mutual funds:**\n\n- **Investors with a 401(k):** Many employers sponsor a retirement plan with various benefits, such as matching contributions and payroll deductions. However, these plans often invest in mutual funds and don’t have an ETF option.\n- **Those who prefer actively managed funds:** Mutual funds are often (but not always) actively managed, so they may be a better choice for investors who want fund managers to pick their investments.\n- **Those who prefer dollar-cost averaging and automatic investments:** 401(k) plans and brokerage accounts often allow automatic contributions to mutual funds. This makes it easy to regularly invest a set amount.\n## Do ETFs and mutual funds pay distributions?\nMutual funds may pay capital gains distributions at the end of the year and dividends throughout the year, while ETFs may pay dividends throughout the year. But there’s a difference in these payouts to investors, and ETF investors have an advantage here, too.\n\nETFs may pay a cash dividend on a quarterly basis. Each share will receive a specific amount, so the more shares you own, the higher your total payout. But not all funds offer dividends, even if they do provide a cash payout. For example, fixed income ETFs technically pay out interest instead.\n\nETF distributions can be either qualified or non-qualified. The difference between the two depends on how they are taxed and how long the stock within the ETF is held:\n\n- Qualified dividends are paid on stock held by the ETF. The stock must be owned for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date. Qualified dividends are taxed at the\n  [capital gains tax rate](https:\/\/www.bankrate.com\/investing\/long-term-capital-gains-tax\/)\n  .\n- Non-qualified dividends are taxed at\n  ordinary income rates\n  .\n\nMutual funds may also issue a payout, and it may be paid regularly throughout the year. Investors may also be able to take advantage of the rules surrounding qualified dividends to achieve a lower tax rate on payouts.\n\nBut mutual funds may also expose investors to an additional tax complication. That’s because mutual funds are required to distribute their realized capital gains at the end of the year. While you receive the payout in cash, you may then have to turn around and pay taxes on it to the IRS. These tax considerations don’t apply to mutual funds held in tax-advantaged accounts.\n\nEven if the mutual fund isn’t trading a bunch of stocks as part of its strategy, the act of redeeming shares for outgoing investors can force managers to sell shares of the investments in the fund, potentially creating a capital gain.\n\nAdditionally, if you buy the fund late in the year, you could still be paying a tax bill for events that happened before you made the investment.\n\n## Mutual fund vs. ETF: Which one is safer?\nIn terms of safety, neither the mutual fund nor the ETF is safer than the other due to its structure. Safety is determined by what the fund itself owns. Stocks are usually riskier than bonds, and corporate bonds come with somewhat more risk than U.S. government bonds. But higher risk (especially if it’s diversified) may deliver higher long-term returns.\n\nThat’s why it’s critical that you understand the characteristics of your investments, and not just whether the fund is an ETF or mutual fund. A mutual fund or ETF tracking the same index will deliver about the same returns, so you’re not exposed to more risk one way or the other.\n\n## Bottom line\nFor many different purposes, an ETF is a better option for investors because it offers some tax advantages, low commissions and easy tradability. But in other specific circumstances, notably for stock index funds, mutual funds can actually be cheaper than ETFs, and if they’re held in a tax-advantaged account, their tax implications are irrelevant anyway. Either way, you need to know what your funds are invested in and how they help you achieve your financial goals.\n\n*Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.*\n\nDid you find this page helpful?\n\n**Why we ask for feedback** Your feedback helps us improve our content and services. It takes less than a minute to complete.\n\nYour responses are anonymous and will only be used for improving our website.\n\nHelp us improve our content\n\nYes\n\nNo\n\nThank you for your feedback\\!\n\nYour input helps us improve our content and services.\n\nCite us\n\nShare this article\n\nShare this article\n\nClose\n\n![](https:\/\/www.bankrate.com\/2021\/10\/26151853\/James-Royal-headshot-scaled-square.jpg?auto=webp&quality=85&width=96&height=96&fit=cover&enable=upscale&crop=1:1,smart)\n\nWritten by\n\n[James Royal, Ph.D.](https:\/\/www.bankrate.com\/authors\/james-royal\/)\n\nFormer Principal Writer, Investing and Wealth Management\n\n- [Connect with James Royal, Ph.D. on Twitter](https:\/\/twitter.com\/JimRoyalPhD)\n- [Connect with James Royal, Ph.D. on LinkedIn](https:\/\/www.linkedin.com\/in\/james-royal-phd-809b929\/)\n- [Get in contact with James Royal, Ph.D. via Email](mailto:jroyal@redventures.com)\n\n[Read more from James](https:\/\/www.bankrate.com\/authors\/james-royal\/)\n\nFormer Bankrate principal writer and editor James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.\n\n![A woman works on her laptop while holding her phone and looking at papers.](https:\/\/www.bankrate.com\/brp\/2024\/04\/24160259\/mutual-funds-vs-etfs.jpg?auto=webp&optimize=high&crop=16:9)\n\nFRAME STUDIO\/Getty Images\n\nBankrate is always editorially independent. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money . Our Bankrate promise is to ensure everything we publish is objective, accurate and trustworthy.\n\nTable of contents\n\n- [Mutual funds vs. ETFs: Similarities and differences](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#mutual-funds-vs-etfs)\n- [ETF vs. mutual fund: Which one should you choose and why?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#etf-vs-mutual-fund)\n- [Do ETFs and mutual funds pay distributions?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#pay-distributions)\n- [Mutual fund vs. ETF: Which one is safer?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#which-one-is-safer)\n\nBack to top\n\n## You may also like\n![woman working in home office](https:\/\/www.bankrate.com\/brp\/2024\/08\/26183023\/What-are-the-pros-and-cons-of-a-variable-annuity_-300x169.jpg)\n\n[The pros and cons of variable annuities](https:\/\/www.bankrate.com\/retirement\/what-are-the-pros-and-cons-of-a-variable-annuity\/)\n\nRetirement\n\nBy [Logan Jacoby](https:\/\/www.bankrate.com\/authors\/logan-jacoby\/)\n\n3 min read\n\n![A couple looks at a laptop computer and documents while working on their investments.](https:\/\/www.bankrate.com\/brp\/2023\/03\/17162952\/Mutual-funds-Pros-and-cons-for-investors-300x169.jpg)\n\n[Mutual funds: Pros and cons for investors](https:\/\/www.bankrate.com\/investing\/mutual-funds-advantages-disadvantages\/)\n\nInvesting\n\nBy [Bob Haegele](https:\/\/www.bankrate.com\/authors\/bob-haegele\/)\n\n5 min read\n\n![Letter blocks spelling out \"ETF\" on a yellow background.](https:\/\/www.bankrate.com\/brp\/2024\/07\/16154318\/Investments-Best-dividend-ETFs-and-how-to-invest-in-them-300x169.jpg)\n\n[Best dividend ETFs and how to invest in them](https:\/\/www.bankrate.com\/investing\/best-dividend-etfs\/)\n\nInvesting\n\nBy [Giovanny Moreano](https:\/\/www.bankrate.com\/authors\/giovanny-moreano\/)\n\n5 min read\n\n![ETFs vs. index funds](https:\/\/www.bankrate.com\/2021\/09\/02141359\/GettyImages-472125687.jpg)\n\n[ETFs vs. index funds: Key differences and similarities](https:\/\/www.bankrate.com\/investing\/etf-vs-index-fund\/)\n\nInvesting\n\nBy [Bob Haegele](https:\/\/www.bankrate.com\/authors\/bob-haegele\/)\n\n5 min read\n\n## [Bankrate logo](https:\/\/www.bankrate.com\/)\n### About\n- [About us](https:\/\/www.bankrate.com\/about\/)\n- [Leadership](https:\/\/www.bankrate.com\/leadership\/)\n- [Press room](https:\/\/www.bankrate.com\/press-releases\/)\n- [Bankrate Data Center](https:\/\/www.bankrate.com\/data-center\/)\n- [Careers](https:\/\/www.bankrate.com\/careers\/)\n- [Site map](https:\/\/www.bankrate.com\/corporate\/site-map\/)\n\n### Help\n- [Compare rates](https:\/\/www.bankrate.com\/compare-rates\/)\n- [Latest news](https:\/\/www.bankrate.com\/news\/)\n- [Popular topics](https:\/\/www.bankrate.com\/popular-finance-topics\/)\n- [Advertise with us](https:\/\/www.bankrate.com\/media-kit\/)\n\n### Legal\n- [Privacy policy](https:\/\/www.bankrate.com\/privacy\/)\n- Cookie settings\n- [Do Not Sell or Share My Personal Information](https:\/\/www.bankrate.com\/do-not-sell-or-share-my-personal-information\/)\n- [Consumer Health Information Privacy Policy](https:\/\/www.bankrate.com\/consumer-health-information-privacy-policy\/)\n- [Understanding Bankrate’s averages](https:\/\/www.bankrate.com\/understanding-bankrates-rate-averages\/)\n- [Terms of use](https:\/\/www.bankrate.com\/terms\/)\n- [GLBA annual notice](https:\/\/www.bankrate.com\/glba-notice\/)\n- [California Consumer Financial Privacy Notice](https:\/\/www.bankrate.com\/2022\/02\/15094901\/california-notice.pdf)\n- [Licenses](https:\/\/www.bankrate.com\/licenses\/)\n\n### How we make money\nBankrate.com is an independent, advertising-supported publisher and comparison service. 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We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.\n\nBankrate follows a strict [editorial policy](https:\/\/www.bankrate.com\/editorial-guidelines\/ \"editorial policy\"), so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.\n\nWe’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.\n\nBankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.\n\nTable of contents\n\n- [Mutual funds vs. ETFs: Similarities and differences](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#mutual-funds-vs-etfs)\n- [ETF vs. mutual fund: Which one should you choose and why?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#etf-vs-mutual-fund)\n- [Do ETFs and mutual funds pay distributions?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#pay-distributions)\n- [Mutual fund vs. ETF: Which one is safer?](https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/#which-one-is-safer)\n\n**Quick citation guide**   Select a citation to automatically copy to clipboard.\n\n**APA:**  Royal, J. (2025, March 25). *ETF vs. mutual fund: Which is the better investment?* Bankrate. Retrieved April 24, 2026, from https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/\n\nCopied to clipboard\\!\n\n**MLA:**  Royal, James. \"ETF vs. mutual fund: Which is the better investment?\" *Bankrate*. 25 March 2025, https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/.\n\nCopied to clipboard\\!\n\n**Chicago:**  Royal, James. \"ETF vs. mutual fund: Which is the better investment?\" Bankrate. March 25, 2025. https:\/\/www.bankrate.com\/investing\/mutual-fund-vs-etf-which-is-better\/.\n\nCopied to clipboard\\!\n\n![](https:\/\/www.facebook.com\/tr?id=1805085980359671&ev=PageView&noscript=1)\n\n![](https:\/\/www.facebook.com\/tr?id=1564326531369118&ev=PageView&noscript=1)","attrs_readable_markdown":"Mutual funds and exchange-traded funds (ETFs) can both offer many benefits for your investment portfolio, including instant diversification at a low cost. But they have some key differences, in particular, how expensive the funds are. Overall, [ETFs hold an edge](https:\/\/www.bankrate.com\/investing\/what-are-etfs\/) because they tend to use passive investing more often and have some tax advantages.\n\nHere’s what differentiates a mutual fund from an ETF and which is better for your portfolio.\n\n## Key takeaways\n- ETFs are typically passively managed funds that trade on an exchange. They often have lower fees and can be purchased throughout the trading day.\n- Mutual funds are usually actively managed funds that are proprietary and may have higher fees. They are priced at the end of the trading day.\n- Both fund types allow investors to buy a broad set of securities with a single share.\n## Mutual funds vs. ETFs: Similarities and differences\n[Mutual funds](https:\/\/www.bankrate.com\/investing\/guide-to-mutual-funds\/) remain top dog in terms of total assets, thanks to their prominence in retirement plans such as[401(k)s](https:\/\/www.bankrate.com\/retirement\/401k\/). U.S. mutual funds had around \\$21.7 trillion in total financial assets as of the fourth quarter of 2024, compared to about \\$10.3 trillion in[ETFs](https:\/\/www.bankrate.com\/investing\/what-are-etfs\/), according to the St. Louis Fed. But ETFs have been growing quickly in the last decade, as investors are drawn by their low fees and ease of trading.\n\nBoth types of funds allow you to invest in a diversified portfolio by buying just one security. For example, you can buy an index fund based on [the Standard & Poor’s 500 index](https:\/\/www.bankrate.com\/investing\/how-to-buy-sp-500-index-fund\/) (S\\&P 500) of top American companies as either a mutual fund or an ETF. Or you could buy a portfolio of bonds with either. Some funds allow you to [buy gold](https:\/\/www.bankrate.com\/investing\/ways-to-buy-sell-gold\/) or all the companies in a certain industry, for example.\n\n### Mutual funds: An overview\nMutual funds are an older way of allowing a group of investors to own a share in a larger portfolio. Mutual funds tend to be actively managed, so they’re trying to beat their benchmark index, and may charge higher expenses than ETFs, including the possibility of sales commissions. Mutual funds typically have minimum initial purchase requirements, and they can be purchased only after the market is closed, when their [net asset value (NAV)](https:\/\/www.bankrate.com\/investing\/what-is-net-asset-value\/) is calculated and set.\n\n### ETFs: An overview\nETFs are a newer way of allowing investors to own a share in a larger portfolio. ETFs tend to be passively managed, meaning their holdings track a preset index of securities such as the S\\&P 500 rather than having a portfolio manager picking them. They generally charge low expenses and have no sales commissions. ETFs usually do not have a minimum initial purchase requirement, though some brokers may not allow you to buy fractional shares of them. ETFs are traded during the day like a stock and their price can fluctuate around their net asset value.\n\nWhether you’re buying a mutual fund or an ETF, you can invest in a diverse selection of assets.\n\n| Feature | Mutual funds | ETFs |\n|---|---|---|\n| **Type of assets** | Stocks, bonds, gold, etc. | Stocks, bonds, gold, etc. |\n| **Type of fund management** | More actively invested | More passively invested |\n| **Fund expense ratios** | Higher | Lower |\n| **Brokerage commissions** | Often \\$0, but may range up to \\$50 | Typically \\$0 |\n| **Sales commissions (loads)** | Often none, but sometimes 1 or 2 percent | None |\n| **When you can trade** | Priced at the end of the trading day | Can be purchased throughout the trading day |\n| **Tax efficiency** | Lower | Higher |\n### Active management vs. passive management\nHow a fund actually invests has a lot to do with your costs and potential returns. Some funds engage in what’s called active management, in which the fund’s manager picks and chooses securities to buy and sell, and when to do so. This approach is more typical for mutual funds, though they may also be passively managed.\n\nThe other approach is called passive investing, and it’s where the fund manager doesn’t select the investments but rather mimics an index that’s already been selected, such as the S\\&P 500. This approach is more typical of ETFs, though ETFs may sometimes be actively managed.\n\nSo generally speaking, mutual funds have been actively managed, whereas ETFs have been passive. But these lines have blurred somewhat and it’s possible to find actively managed ETFs and passively managed mutual funds.\n\nThis difference matters for a couple key reasons: the returns you’re likely to see as an investor and the [expense ratio](https:\/\/www.bankrate.com\/investing\/what-is-an-expense-ratio\/) you’re likely to pay.\n\n### Fund returns and costs\nHere’s the upshot of the active vs. passive debate: [passive investing does better most of the time](https:\/\/www.bankrate.com\/investing\/active-versus-passive\/). In fact, a recent report from S\\&P Dow Jones Indices shows that 93 percent of U.S. active managers in large companies were unable to beat the market over a 20-year period ending Dec. 31, 2023.\n\nYes, the best funds can beat their benchmarks (often the S\\&P 500) in a given year, but over time it’s tough for active managers to outperform.\n\nIn passive investing, the goal is not to beat the market, as is usual for active managers. Instead, passive investors are simply looking to *be* the market. And if passive investing outperforms the vast majority of investors, it also means you can beat most active professional managers, too.\n\nThat gives an advantage to ETFs, which are typically passively managed, though again some mutual funds are also passively managed. You’ll need to read the fund’s prospectus to see.\n\nActive management has another downside: it tends to cost more than a passively managed fund. The emergence of lower-cost ETFs has helped reduce the expenses in mutual funds as they are forced to compete.\n\nAs you can see in the chart below, expense ratios on funds have been falling for the past two decades. Expenses for stock mutual funds still remain above those for ETFs, whether you’re comparing a simple average or an asset-weighted average (factoring in how big the fund is).\n\nThe simple average gives you an idea of what you’d likely pay if you picked funds at random, while the asset-weighted average tells you what a typical investor might actually be paying. So mutual funds are quite a bit more expensive than ETFs, comparing their respective averages.\n\nFor example, in 2023, an average mutual fund (asset-weighted) cost 0.42 percent of your assets each year. In practical terms, it would cost \\$42 for every \\$10,000 you have invested. In contrast, the comparable average index ETF had an expense ratio of just 0.15 percent, or \\$15 annually for every \\$10,000 invested.\n\nBut the details differ when you dig in. If you focus on passively managed stock mutual funds, they’re actually cheaper than passively managed stock ETFs, as you can see in the chart below.\n\nIn 2023, [stock index mutual funds](https:\/\/www.bankrate.com\/investing\/best-index-funds\/) charged an average of 0.05 percent (asset-weighted), while a comparable stock index ETF charged 0.15 percent.\n\nAn actively managed mutual fund may also ding your returns in another way, by running up your tax bill. Because it trades in and out of the market, an actively managed fund recognizes capital gains more frequently than a passively managed fund such as most ETFs. It must pass on some of those taxable [capital gains](https:\/\/www.bankrate.com\/investing\/long-term-capital-gains-tax\/) distributions to investors at the end of the year.\n\nIn addition to these costs, investors in mutual funds may also have to [watch out for sales commissions](https:\/\/www.bankrate.com\/investing\/load-vs-no-load-mutual-funds\/), too, which can quickly eat up your principal before you’ve even invested your money. That’s not a cost that’s associated with ETFs — or [the best mutual funds](https:\/\/www.bankrate.com\/investing\/best-mutual-funds\/), for that matter.\n\nWhether you go with an ETF or mutual fund, be sure to check the expense ratio and any other costs of the fund. Costs are a huge driver of your return, and experts suggest that you focus on those first, especially for index funds, where everyone is tracking the same index anyway.\n\n### Commissions and minimum purchases\nIn the category of commissions, ETF investors are real winners. The big-name brokerages [have slashed commissions to zero](https:\/\/www.bankrate.com\/investing\/commission-free-trading-what-brokers-should-offer-next\/) on all ETFs offered on their sites. So it won’t cost you anything to trade these funds, though some brokers may impose an early redemption fee. That’s a huge boon for investors, especially if you like to [dollar-cost average on your purchases](https:\/\/www.bankrate.com\/investing\/dollar-cost-averaging-what-it-is-avoids-timing-market\/).\n\nBut that’s not the case for mutual funds, where some still charge sales commissions (or loads) that might run you 1 or 2 percent of your money but sometimes even more. Fortunately, many good mutual funds no longer charge these fees, and it’s relatively easy to avoid them. Otherwise, you’re paying to enrich the fund-management firm at the expense of your returns.\n\nAnd brokerages may also charge you a fee for trading mutual funds — some may run nearly \\$50 per trade — though [the best brokers offer many funds without a trading commission](https:\/\/www.bankrate.com\/investing\/best-online-brokers\/).\n\nAs for a minimum purchase amount, ETFs often have an advantage here, too. Usually a broker may require you to buy at least one share of a fund in order to make a purchase, though these days many [brokerages allow you to buy fractional shares](https:\/\/www.bankrate.com\/investing\/best-brokers-fractional-share-investing\/). Even if you have to buy a full share, that might cost you as little as \\$20 up to perhaps \\$250, still a relatively small amount.\n\nIn contrast, some mutual funds may require you to purchase at least \\$2,500 to get started, if you’re opening your own individual account, with smaller minimum subsequent deposits. Some mutual funds also charge early redemption fees if you sell your position in less than 30 days.\n\n### When you can buy mutual funds and ETFs\nThe time and frequency when you can purchase a mutual fund or ETF differs. Mutual funds are priced only at the end of each trading day. While you can place your order at any time, it won’t be filled until the exact price of the fund is tallied up at day’s end. So you won’t know what you’re paying until the transaction is complete. But you’ll always pay the exact net asset value of the fund’s holdings.\n\nIn contrast, an ETF trades like a stock on an exchange, and you can buy whenever the market is open. You can place your buy or sell order as you would for a stock and see the exact price you pay when the order is executed. Unlike a mutual fund, you may end up paying more or less than the fund’s actual net assets, though the difference is usually negligible.\n\nThis trading flexibility has helped make ETFs a popular way to invest.\n\n## ETF vs. mutual fund: Which one should you choose and why?\nIn many ways mutual funds and ETFs do the same thing, so the better long-term choice depends a lot on what the fund is actually invested in (the specific stocks and bonds, for example). For instance, mutual funds and ETFs based on the [S\\&P 500 index](https:\/\/www.bankrate.com\/investing\/what-is-sp-500\/) are largely going to perform the same for you. But actively managed funds may have widely different results, depending on how they’re invested.\n\nWhere the differences come in, however, are in the fees, commissions and other costs associated with your choice. And in these respects, ETFs have an edge on mutual funds. They also have an edge in terms of their tax efficiency, helping to reduce your overall tax burden.\n\n**Who should consider ETFs:**\n\n- **Investors who want to save on fees:** While mutual fund fees have dropped in recent years, ETFs tend to have lower fees.\n- **Self-directed investors:** ETFs trade on exchanges, so you can buy them anywhere stocks are sold.\n- **Passive investors:** ETFs are ideal for buy-and-hold investors seeking long-term exposure to broad funds like those that track the S\\&P 500.\n- **Tax optimizers:** ETFs can be more tax-efficient, so they may be a better choice for those looking to reduce their tax burdens.\n\n**Who should consider mutual funds:**\n\n- **Investors with a 401(k):** Many employers sponsor a retirement plan with various benefits, such as matching contributions and payroll deductions. However, these plans often invest in mutual funds and don’t have an ETF option.\n- **Those who prefer actively managed funds:** Mutual funds are often (but not always) actively managed, so they may be a better choice for investors who want fund managers to pick their investments.\n- **Those who prefer dollar-cost averaging and automatic investments:** 401(k) plans and brokerage accounts often allow automatic contributions to mutual funds. This makes it easy to regularly invest a set amount.\n## Do ETFs and mutual funds pay distributions?\nMutual funds may pay capital gains distributions at the end of the year and dividends throughout the year, while ETFs may pay dividends throughout the year. But there’s a difference in these payouts to investors, and ETF investors have an advantage here, too.\n\nETFs may pay a cash dividend on a quarterly basis. Each share will receive a specific amount, so the more shares you own, the higher your total payout. But not all funds offer dividends, even if they do provide a cash payout. For example, fixed income ETFs technically pay out interest instead.\n\nETF distributions can be either qualified or non-qualified. The difference between the two depends on how they are taxed and how long the stock within the ETF is held:\n\n- Qualified dividends are paid on stock held by the ETF. The stock must be owned for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date. Qualified dividends are taxed at the\n  [capital gains tax rate](https:\/\/www.bankrate.com\/investing\/long-term-capital-gains-tax\/)\n  .\n- Non-qualified dividends are taxed at\n  ordinary income rates\n  .\n\nMutual funds may also issue a payout, and it may be paid regularly throughout the year. Investors may also be able to take advantage of the rules surrounding qualified dividends to achieve a lower tax rate on payouts.\n\nBut mutual funds may also expose investors to an additional tax complication. That’s because mutual funds are required to distribute their realized capital gains at the end of the year. While you receive the payout in cash, you may then have to turn around and pay taxes on it to the IRS. These tax considerations don’t apply to mutual funds held in tax-advantaged accounts.\n\nEven if the mutual fund isn’t trading a bunch of stocks as part of its strategy, the act of redeeming shares for outgoing investors can force managers to sell shares of the investments in the fund, potentially creating a capital gain.\n\nAdditionally, if you buy the fund late in the year, you could still be paying a tax bill for events that happened before you made the investment.\n\nIn terms of safety, neither the mutual fund nor the ETF is safer than the other due to its structure. Safety is determined by what the fund itself owns. Stocks are usually riskier than bonds, and corporate bonds come with somewhat more risk than U.S. government bonds. But higher risk (especially if it’s diversified) may deliver higher long-term returns.\n\nThat’s why it’s critical that you understand the characteristics of your investments, and not just whether the fund is an ETF or mutual fund. A mutual fund or ETF tracking the same index will deliver about the same returns, so you’re not exposed to more risk one way or the other.\n\n## Bottom line\nFor many different purposes, an ETF is a better option for investors because it offers some tax advantages, low commissions and easy tradability. But in other specific circumstances, notably for stock index funds, mutual funds can actually be cheaper than ETFs, and if they’re held in a tax-advantaged account, their tax implications are irrelevant anyway. Either way, you need to know what your funds are invested in and how they help you achieve your financial goals.\n\n*Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.*\n\nDid you find this page helpful?\n\nHelp us improve our content","meta_canonical":null,"ml_categories_json":"{\"\/Finance\":998,\"\/Finance\/Investing\":994,\"\/Finance\/Investing\/Funds\":973}","ml_types_json":"{\"\/Article\":995,\"\/Article\/Comparisons\":987}","ml_intent_types_json":"{\"Informational\":992}","meta_language":"en-us","attrs_author":"James Royal","attrs_publish_time":1742900400,"attrs_original_publish_time":1499949673,"attrs_is_republished":1,"attrs_nr_words":"7263","attrs_boilerpipe_nr_words":"2645","body_ext_links_number":17,"body_int_links_number":267,"meta_nofollow":0,"meta_noarchive":0,"props_was_rendered":1,"src_redirect":"","download_time_msec":182,"download_ttfb_msec":150,"download_size":117537}

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ETF Vs. Mutual Fund: Which Is Right For You? | Bankrate

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Mutual funds and ETFs can both offer many benefits for your portfolio, including instant diversification at a low cost., Mutual funds and ETFs can both offer many benefits for your portfolio, including instant diversification at a low cost.

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Mutual funds and exchange-traded funds (ETFs) can both offer many benefits for your investment portfolio, including instant diversification at a low cost. But they have some key differences, in particular, how expensive the funds are. Overall, ETFs hold an edge because they tend to use passive investing more often and have some tax advantages. Here’s what differentiates a mutual fund from an ETF and which is better for your portfolio. Key takeaways ETFs are typically passively managed funds that trade on an exchange. They often have lower fees and can be purchased throughout the trading day. Mutual funds are usually actively managed funds that are proprietary and may have higher fees. They are priced at the end of the trading day. Both fund types allow investors to buy a broad set of securities with a single share. Mutual funds vs. ETFs: Similarities and differences Mutual funds remain top dog in terms of total assets, thanks to their prominence in retirement plans such as 401(k)s . U.S. mutual funds had around $21.7 trillion in total financial assets as of the fourth quarter of 2024, compared to about $10.3 trillion in ETFs , according to the St. Louis Fed. But ETFs have been growing quickly in the last decade, as investors are drawn by their low fees and ease of trading. Both types of funds allow you to invest in a diversified portfolio by buying just one security. For example, you can buy an index fund based on the Standard & Poor’s 500 index (S&P 500) of top American companies as either a mutual fund or an ETF. Or you could buy a portfolio of bonds with either. Some funds allow you to buy gold or all the companies in a certain industry, for example. Mutual funds: An overview Mutual funds are an older way of allowing a group of investors to own a share in a larger portfolio. Mutual funds tend to be actively managed, so they’re trying to beat their benchmark index, and may charge higher expenses than ETFs, including the possibility of sales commissions. Mutual funds typically have minimum initial purchase requirements, and they can be purchased only after the market is closed, when their net asset value (NAV) is calculated and set. ETFs: An overview ETFs are a newer way of allowing investors to own a share in a larger portfolio. ETFs tend to be passively managed, meaning their holdings track a preset index of securities such as the S&P 500 rather than having a portfolio manager picking them. They generally charge low expenses and have no sales commissions. ETFs usually do not have a minimum initial purchase requirement, though some brokers may not allow you to buy fractional shares of them. ETFs are traded during the day like a stock and their price can fluctuate around their net asset value. Whether you’re buying a mutual fund or an ETF, you can invest in a diverse selection of assets. Feature Mutual funds ETFs Type of assets Stocks, bonds, gold, etc. Stocks, bonds, gold, etc. Type of fund management More actively invested More passively invested Fund expense ratios Higher Lower Brokerage commissions Often $0, but may range up to $50 Typically $0 Sales commissions (loads) Often none, but sometimes 1 or 2 percent None When you can trade Priced at the end of the trading day Can be purchased throughout the trading day Tax efficiency Lower Higher Active management vs. passive management How a fund actually invests has a lot to do with your costs and potential returns. Some funds engage in what’s called active management, in which the fund’s manager picks and chooses securities to buy and sell, and when to do so. This approach is more typical for mutual funds, though they may also be passively managed. The other approach is called passive investing, and it’s where the fund manager doesn’t select the investments but rather mimics an index that’s already been selected, such as the S&P 500. This approach is more typical of ETFs, though ETFs may sometimes be actively managed. So generally speaking, mutual funds have been actively managed, whereas ETFs have been passive. But these lines have blurred somewhat and it’s possible to find actively managed ETFs and passively managed mutual funds. This difference matters for a couple key reasons: the returns you’re likely to see as an investor and the expense ratio you’re likely to pay. Fund returns and costs Here’s the upshot of the active vs. passive debate: passive investing does better most of the time . In fact, a recent report from S&P Dow Jones Indices shows that 93 percent of U.S. active managers in large companies were unable to beat the market over a 20-year period ending Dec. 31, 2023. Yes, the best funds can beat their benchmarks (often the S&P 500) in a given year, but over time it’s tough for active managers to outperform. In passive investing, the goal is not to beat the market, as is usual for active managers. Instead, passive investors are simply looking to be the market. And if passive investing outperforms the vast majority of investors, it also means you can beat most active professional managers, too. That gives an advantage to ETFs, which are typically passively managed, though again some mutual funds are also passively managed. You’ll need to read the fund’s prospectus to see. Active management has another downside: it tends to cost more than a passively managed fund. The emergence of lower-cost ETFs has helped reduce the expenses in mutual funds as they are forced to compete. As you can see in the chart below, expense ratios on funds have been falling for the past two decades. Expenses for stock mutual funds still remain above those for ETFs, whether you’re comparing a simple average or an asset-weighted average (factoring in how big the fund is). The simple average gives you an idea of what you’d likely pay if you picked funds at random, while the asset-weighted average tells you what a typical investor might actually be paying. So mutual funds are quite a bit more expensive than ETFs, comparing their respective averages. For example, in 2023, an average mutual fund (asset-weighted) cost 0.42 percent of your assets each year. In practical terms, it would cost $42 for every $10,000 you have invested. In contrast, the comparable average index ETF had an expense ratio of just 0.15 percent, or $15 annually for every $10,000 invested. But the details differ when you dig in. If you focus on passively managed stock mutual funds, they’re actually cheaper than passively managed stock ETFs, as you can see in the chart below. In 2023, stock index mutual funds charged an average of 0.05 percent (asset-weighted), while a comparable stock index ETF charged 0.15 percent. An actively managed mutual fund may also ding your returns in another way, by running up your tax bill. Because it trades in and out of the market, an actively managed fund recognizes capital gains more frequently than a passively managed fund such as most ETFs. It must pass on some of those taxable capital gains distributions to investors at the end of the year. In addition to these costs, investors in mutual funds may also have to watch out for sales commissions , too, which can quickly eat up your principal before you’ve even invested your money. That’s not a cost that’s associated with ETFs — or the best mutual funds , for that matter. Whether you go with an ETF or mutual fund, be sure to check the expense ratio and any other costs of the fund. Costs are a huge driver of your return, and experts suggest that you focus on those first, especially for index funds, where everyone is tracking the same index anyway. Commissions and minimum purchases In the category of commissions, ETF investors are real winners. The big-name brokerages have slashed commissions to zero on all ETFs offered on their sites. So it won’t cost you anything to trade these funds, though some brokers may impose an early redemption fee. That’s a huge boon for investors, especially if you like to dollar-cost average on your purchases . But that’s not the case for mutual funds, where some still charge sales commissions (or loads) that might run you 1 or 2 percent of your money but sometimes even more. Fortunately, many good mutual funds no longer charge these fees, and it’s relatively easy to avoid them. Otherwise, you’re paying to enrich the fund-management firm at the expense of your returns. And brokerages may also charge you a fee for trading mutual funds — some may run nearly $50 per trade — though the best brokers offer many funds without a trading commission . As for a minimum purchase amount, ETFs often have an advantage here, too. Usually a broker may require you to buy at least one share of a fund in order to make a purchase, though these days many brokerages allow you to buy fractional shares . Even if you have to buy a full share, that might cost you as little as $20 up to perhaps $250, still a relatively small amount. In contrast, some mutual funds may require you to purchase at least $2,500 to get started, if you’re opening your own individual account, with smaller minimum subsequent deposits. Some mutual funds also charge early redemption fees if you sell your position in less than 30 days. When you can buy mutual funds and ETFs The time and frequency when you can purchase a mutual fund or ETF differs. Mutual funds are priced only at the end of each trading day. While you can place your order at any time, it won’t be filled until the exact price of the fund is tallied up at day’s end. So you won’t know what you’re paying until the transaction is complete. But you’ll always pay the exact net asset value of the fund’s holdings. In contrast, an ETF trades like a stock on an exchange, and you can buy whenever the market is open. You can place your buy or sell order as you would for a stock and see the exact price you pay when the order is executed. Unlike a mutual fund, you may end up paying more or less than the fund’s actual net assets, though the difference is usually negligible. This trading flexibility has helped make ETFs a popular way to invest. ETF vs. mutual fund: Which one should you choose and why? In many ways mutual funds and ETFs do the same thing, so the better long-term choice depends a lot on what the fund is actually invested in (the specific stocks and bonds, for example). For instance, mutual funds and ETFs based on the S&P 500 index are largely going to perform the same for you. But actively managed funds may have widely different results, depending on how they’re invested. Where the differences come in, however, are in the fees, commissions and other costs associated with your choice. And in these respects, ETFs have an edge on mutual funds. They also have an edge in terms of their tax efficiency, helping to reduce your overall tax burden. Who should consider ETFs: Investors who want to save on fees: While mutual fund fees have dropped in recent years, ETFs tend to have lower fees. Self-directed investors: ETFs trade on exchanges, so you can buy them anywhere stocks are sold. Passive investors: ETFs are ideal for buy-and-hold investors seeking long-term exposure to broad funds like those that track the S&P 500. Tax optimizers: ETFs can be more tax-efficient, so they may be a better choice for those looking to reduce their tax burdens. Who should consider mutual funds: Investors with a 401(k): Many employers sponsor a retirement plan with various benefits, such as matching contributions and payroll deductions. However, these plans often invest in mutual funds and don’t have an ETF option. Those who prefer actively managed funds: Mutual funds are often (but not always) actively managed, so they may be a better choice for investors who want fund managers to pick their investments. Those who prefer dollar-cost averaging and automatic investments: 401(k) plans and brokerage accounts often allow automatic contributions to mutual funds. This makes it easy to regularly invest a set amount. Do ETFs and mutual funds pay distributions? Mutual funds may pay capital gains distributions at the end of the year and dividends throughout the year, while ETFs may pay dividends throughout the year. But there’s a difference in these payouts to investors, and ETF investors have an advantage here, too. ETFs may pay a cash dividend on a quarterly basis. Each share will receive a specific amount, so the more shares you own, the higher your total payout. But not all funds offer dividends, even if they do provide a cash payout. For example, fixed income ETFs technically pay out interest instead. ETF distributions can be either qualified or non-qualified. The difference between the two depends on how they are taxed and how long the stock within the ETF is held: Qualified dividends are paid on stock held by the ETF. The stock must be owned for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date. Qualified dividends are taxed at the capital gains tax rate . Non-qualified dividends are taxed at ordinary income rates . Mutual funds may also issue a payout, and it may be paid regularly throughout the year. Investors may also be able to take advantage of the rules surrounding qualified dividends to achieve a lower tax rate on payouts. But mutual funds may also expose investors to an additional tax complication. That’s because mutual funds are required to distribute their realized capital gains at the end of the year. While you receive the payout in cash, you may then have to turn around and pay taxes on it to the IRS. These tax considerations don’t apply to mutual funds held in tax-advantaged accounts. Even if the mutual fund isn’t trading a bunch of stocks as part of its strategy, the act of redeeming shares for outgoing investors can force managers to sell shares of the investments in the fund, potentially creating a capital gain. Additionally, if you buy the fund late in the year, you could still be paying a tax bill for events that happened before you made the investment. In terms of safety, neither the mutual fund nor the ETF is safer than the other due to its structure. Safety is determined by what the fund itself owns. Stocks are usually riskier than bonds, and corporate bonds come with somewhat more risk than U.S. government bonds. But higher risk (especially if it’s diversified) may deliver higher long-term returns. That’s why it’s critical that you understand the characteristics of your investments, and not just whether the fund is an ETF or mutual fund. A mutual fund or ETF tracking the same index will deliver about the same returns, so you’re not exposed to more risk one way or the other. Bottom line For many different purposes, an ETF is a better option for investors because it offers some tax advantages, low commissions and easy tradability. But in other specific circumstances, notably for stock index funds, mutual funds can actually be cheaper than ETFs, and if they’re held in a tax-advantaged account, their tax implications are irrelevant anyway. Either way, you need to know what your funds are invested in and how they help you achieve your financial goals. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation. Did you find this page helpful? Info Icon Help us improve our content

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Advertiser Disclosure # ETF vs. mutual fund: Which is the better investment? ![James Royal, Ph.D.](https://www.bankrate.com/2021/10/26151853/James-Royal-headshot-scaled-square.jpg?auto=webp&quality=85&width=24&height=24&fit=cover&enable=upscale&crop=1:1,smart) ![Lisa Dammeyer](https://www.bankrate.com/brp/2024/09/24170827/Lisa-Dammeyer-1.jpg?auto=webp&quality=85&width=24&height=24&fit=cover&enable=upscale&crop=1:1,smart) ![Kenneth Chavis IV](https://www.bankrate.com/brp/2025/01/24125453/VCM-Headshot.jpg?auto=webp&quality=85&width=24&height=24&fit=cover&enable=upscale&crop=1:1,smart) Written by James Royal, Ph.D. , ![](https://www.bankrate.com/2021/10/26151853/James-Royal-headshot-scaled-square.jpg?auto=webp&quality=85&width=64&height=64&fit=cover&enable=upscale&crop=1:1,smart) [James Royal, Ph.D.](https://www.bankrate.com/authors/james-royal/) Former Principal Writer, Investing and Wealth Management Expertise - • Investing - • Wealth management Former Bankrate principal writer and editor James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. [Read more](https://www.bankrate.com/authors/james-royal/) - [Connect with James Royal, Ph.D. on Twitter](https://twitter.com/JimRoyalPhD) - [Connect with James Royal, Ph.D. on LinkedIn](https://www.linkedin.com/in/james-royal-phd-809b929/) - [Get in contact with James Royal, Ph.D. via Email](mailto:jroyal@redventures.com) Close [James Royal, Ph.D.](https://www.bankrate.com/authors/james-royal/), Edited by Lisa Dammeyer , ![](https://www.bankrate.com/brp/2024/09/24170827/Lisa-Dammeyer-1.jpg?auto=webp&quality=85&width=64&height=64&fit=cover&enable=upscale&crop=1:1,smart) [Lisa Dammeyer](https://www.bankrate.com/authors/lisa-dammeyer/) Former Editor, Investing Expertise - • Investing - • Retirement planning Lisa Dammeyer is a former investing editor at Bankrate. She has more than six years of experience distilling down complex topics for everyday people. [Read more](https://www.bankrate.com/authors/lisa-dammeyer/) Close [Lisa Dammeyer](https://www.bankrate.com/authors/lisa-dammeyer/), Reviewed by Kenneth Chavis IV , ![](https://www.bankrate.com/brp/2025/01/24125453/VCM-Headshot.jpg?auto=webp&quality=85&width=64&height=64&fit=cover&enable=upscale&crop=1:1,smart) [Kenneth Chavis IV](https://www.bankrate.com/authors/kenneth-chavis-iv/) Senior wealth advisor at Versant Capital Management Expertise - • Investing and retirement - • Mortgages and real estate Kenneth Chavis IV is a senior wealth counselor at Versant Capital Management who provides investment management, complex wealth strategy, financial planning and tax advice to business owners, executives, medical doctors, and more. 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While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money . Our Bankrate promise is to ensure everything we publish is objective, accurate and trustworthy. ![A woman works on her laptop while holding her phone and looking at papers.](https://www.bankrate.com/brp/2024/04/24160259/mutual-funds-vs-etfs.jpg?auto=webp&optimize=high&crop=16:9) FRAME STUDIO/Getty Images Table of contents - [Mutual funds vs. ETFs: Similarities and differences](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#mutual-funds-vs-etfs) - [ETF vs. mutual fund: Which one should you choose and why?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#etf-vs-mutual-fund) - [Do ETFs and mutual funds pay distributions?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#pay-distributions) - [Mutual fund vs. ETF: Which one is safer?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#which-one-is-safer) Table of contents Back to top Mutual funds and exchange-traded funds (ETFs) can both offer many benefits for your investment portfolio, including instant diversification at a low cost. But they have some key differences, in particular, how expensive the funds are. Overall, [ETFs hold an edge](https://www.bankrate.com/investing/what-are-etfs/) because they tend to use passive investing more often and have some tax advantages. Here’s what differentiates a mutual fund from an ETF and which is better for your portfolio. ## Key takeaways - ETFs are typically passively managed funds that trade on an exchange. They often have lower fees and can be purchased throughout the trading day. - Mutual funds are usually actively managed funds that are proprietary and may have higher fees. They are priced at the end of the trading day. - Both fund types allow investors to buy a broad set of securities with a single share. ## Mutual funds vs. ETFs: Similarities and differences [Mutual funds](https://www.bankrate.com/investing/guide-to-mutual-funds/) remain top dog in terms of total assets, thanks to their prominence in retirement plans such as[401(k)s](https://www.bankrate.com/retirement/401k/). U.S. mutual funds had around \$21.7 trillion in total financial assets as of the fourth quarter of 2024, compared to about \$10.3 trillion in[ETFs](https://www.bankrate.com/investing/what-are-etfs/), according to the St. Louis Fed. But ETFs have been growing quickly in the last decade, as investors are drawn by their low fees and ease of trading. Both types of funds allow you to invest in a diversified portfolio by buying just one security. For example, you can buy an index fund based on [the Standard & Poor’s 500 index](https://www.bankrate.com/investing/how-to-buy-sp-500-index-fund/) (S\&P 500) of top American companies as either a mutual fund or an ETF. Or you could buy a portfolio of bonds with either. Some funds allow you to [buy gold](https://www.bankrate.com/investing/ways-to-buy-sell-gold/) or all the companies in a certain industry, for example. ### Mutual funds: An overview Mutual funds are an older way of allowing a group of investors to own a share in a larger portfolio. Mutual funds tend to be actively managed, so they’re trying to beat their benchmark index, and may charge higher expenses than ETFs, including the possibility of sales commissions. Mutual funds typically have minimum initial purchase requirements, and they can be purchased only after the market is closed, when their [net asset value (NAV)](https://www.bankrate.com/investing/what-is-net-asset-value/) is calculated and set. ### ETFs: An overview ETFs are a newer way of allowing investors to own a share in a larger portfolio. ETFs tend to be passively managed, meaning their holdings track a preset index of securities such as the S\&P 500 rather than having a portfolio manager picking them. They generally charge low expenses and have no sales commissions. ETFs usually do not have a minimum initial purchase requirement, though some brokers may not allow you to buy fractional shares of them. ETFs are traded during the day like a stock and their price can fluctuate around their net asset value. Whether you’re buying a mutual fund or an ETF, you can invest in a diverse selection of assets. | Feature | Mutual funds | ETFs | |---|---|---| | **Type of assets** | Stocks, bonds, gold, etc. | Stocks, bonds, gold, etc. | | **Type of fund management** | More actively invested | More passively invested | | **Fund expense ratios** | Higher | Lower | | **Brokerage commissions** | Often \$0, but may range up to \$50 | Typically \$0 | | **Sales commissions (loads)** | Often none, but sometimes 1 or 2 percent | None | | **When you can trade** | Priced at the end of the trading day | Can be purchased throughout the trading day | | **Tax efficiency** | Lower | Higher | ![](https://navi.cohesionapps.com/display?write_key=wk_2M3TlVcWbz8i1RTZjLkSmbWfyQC&adId=e857f17b3e&req=https%3A%2F%2Fwww.bankrate.com%2Finvesting%2Fmutual-fund-vs-etf-which-is-better%2F&ref=) ### Active management vs. passive management How a fund actually invests has a lot to do with your costs and potential returns. Some funds engage in what’s called active management, in which the fund’s manager picks and chooses securities to buy and sell, and when to do so. This approach is more typical for mutual funds, though they may also be passively managed. The other approach is called passive investing, and it’s where the fund manager doesn’t select the investments but rather mimics an index that’s already been selected, such as the S\&P 500. This approach is more typical of ETFs, though ETFs may sometimes be actively managed. So generally speaking, mutual funds have been actively managed, whereas ETFs have been passive. But these lines have blurred somewhat and it’s possible to find actively managed ETFs and passively managed mutual funds. This difference matters for a couple key reasons: the returns you’re likely to see as an investor and the [expense ratio](https://www.bankrate.com/investing/what-is-an-expense-ratio/) you’re likely to pay. ### Fund returns and costs Here’s the upshot of the active vs. passive debate: [passive investing does better most of the time](https://www.bankrate.com/investing/active-versus-passive/). In fact, a recent report from S\&P Dow Jones Indices shows that 93 percent of U.S. active managers in large companies were unable to beat the market over a 20-year period ending Dec. 31, 2023. Yes, the best funds can beat their benchmarks (often the S\&P 500) in a given year, but over time it’s tough for active managers to outperform. In passive investing, the goal is not to beat the market, as is usual for active managers. Instead, passive investors are simply looking to *be* the market. And if passive investing outperforms the vast majority of investors, it also means you can beat most active professional managers, too. That gives an advantage to ETFs, which are typically passively managed, though again some mutual funds are also passively managed. You’ll need to read the fund’s prospectus to see. Active management has another downside: it tends to cost more than a passively managed fund. The emergence of lower-cost ETFs has helped reduce the expenses in mutual funds as they are forced to compete. As you can see in the chart below, expense ratios on funds have been falling for the past two decades. Expenses for stock mutual funds still remain above those for ETFs, whether you’re comparing a simple average or an asset-weighted average (factoring in how big the fund is). The simple average gives you an idea of what you’d likely pay if you picked funds at random, while the asset-weighted average tells you what a typical investor might actually be paying. So mutual funds are quite a bit more expensive than ETFs, comparing their respective averages. For example, in 2023, an average mutual fund (asset-weighted) cost 0.42 percent of your assets each year. In practical terms, it would cost \$42 for every \$10,000 you have invested. In contrast, the comparable average index ETF had an expense ratio of just 0.15 percent, or \$15 annually for every \$10,000 invested. But the details differ when you dig in. If you focus on passively managed stock mutual funds, they’re actually cheaper than passively managed stock ETFs, as you can see in the chart below. In 2023, [stock index mutual funds](https://www.bankrate.com/investing/best-index-funds/) charged an average of 0.05 percent (asset-weighted), while a comparable stock index ETF charged 0.15 percent. An actively managed mutual fund may also ding your returns in another way, by running up your tax bill. Because it trades in and out of the market, an actively managed fund recognizes capital gains more frequently than a passively managed fund such as most ETFs. It must pass on some of those taxable [capital gains](https://www.bankrate.com/investing/long-term-capital-gains-tax/) distributions to investors at the end of the year. In addition to these costs, investors in mutual funds may also have to [watch out for sales commissions](https://www.bankrate.com/investing/load-vs-no-load-mutual-funds/), too, which can quickly eat up your principal before you’ve even invested your money. That’s not a cost that’s associated with ETFs — or [the best mutual funds](https://www.bankrate.com/investing/best-mutual-funds/), for that matter. Whether you go with an ETF or mutual fund, be sure to check the expense ratio and any other costs of the fund. Costs are a huge driver of your return, and experts suggest that you focus on those first, especially for index funds, where everyone is tracking the same index anyway. ### Commissions and minimum purchases In the category of commissions, ETF investors are real winners. The big-name brokerages [have slashed commissions to zero](https://www.bankrate.com/investing/commission-free-trading-what-brokers-should-offer-next/) on all ETFs offered on their sites. So it won’t cost you anything to trade these funds, though some brokers may impose an early redemption fee. That’s a huge boon for investors, especially if you like to [dollar-cost average on your purchases](https://www.bankrate.com/investing/dollar-cost-averaging-what-it-is-avoids-timing-market/). But that’s not the case for mutual funds, where some still charge sales commissions (or loads) that might run you 1 or 2 percent of your money but sometimes even more. Fortunately, many good mutual funds no longer charge these fees, and it’s relatively easy to avoid them. Otherwise, you’re paying to enrich the fund-management firm at the expense of your returns. And brokerages may also charge you a fee for trading mutual funds — some may run nearly \$50 per trade — though [the best brokers offer many funds without a trading commission](https://www.bankrate.com/investing/best-online-brokers/). As for a minimum purchase amount, ETFs often have an advantage here, too. Usually a broker may require you to buy at least one share of a fund in order to make a purchase, though these days many [brokerages allow you to buy fractional shares](https://www.bankrate.com/investing/best-brokers-fractional-share-investing/). Even if you have to buy a full share, that might cost you as little as \$20 up to perhaps \$250, still a relatively small amount. In contrast, some mutual funds may require you to purchase at least \$2,500 to get started, if you’re opening your own individual account, with smaller minimum subsequent deposits. Some mutual funds also charge early redemption fees if you sell your position in less than 30 days. ### When you can buy mutual funds and ETFs The time and frequency when you can purchase a mutual fund or ETF differs. Mutual funds are priced only at the end of each trading day. While you can place your order at any time, it won’t be filled until the exact price of the fund is tallied up at day’s end. So you won’t know what you’re paying until the transaction is complete. But you’ll always pay the exact net asset value of the fund’s holdings. In contrast, an ETF trades like a stock on an exchange, and you can buy whenever the market is open. You can place your buy or sell order as you would for a stock and see the exact price you pay when the order is executed. Unlike a mutual fund, you may end up paying more or less than the fund’s actual net assets, though the difference is usually negligible. This trading flexibility has helped make ETFs a popular way to invest. ![](https://navi.cohesionapps.com/display?write_key=wk_2M3TlVcWbz8i1RTZjLkSmbWfyQC&adId=61eb82035c&req=https%3A%2F%2Fwww.bankrate.com%2Finvesting%2Fmutual-fund-vs-etf-which-is-better%2F&ref=) ## ETF vs. mutual fund: Which one should you choose and why? In many ways mutual funds and ETFs do the same thing, so the better long-term choice depends a lot on what the fund is actually invested in (the specific stocks and bonds, for example). For instance, mutual funds and ETFs based on the [S\&P 500 index](https://www.bankrate.com/investing/what-is-sp-500/) are largely going to perform the same for you. But actively managed funds may have widely different results, depending on how they’re invested. Where the differences come in, however, are in the fees, commissions and other costs associated with your choice. And in these respects, ETFs have an edge on mutual funds. They also have an edge in terms of their tax efficiency, helping to reduce your overall tax burden. **Who should consider ETFs:** - **Investors who want to save on fees:** While mutual fund fees have dropped in recent years, ETFs tend to have lower fees. - **Self-directed investors:** ETFs trade on exchanges, so you can buy them anywhere stocks are sold. - **Passive investors:** ETFs are ideal for buy-and-hold investors seeking long-term exposure to broad funds like those that track the S\&P 500. - **Tax optimizers:** ETFs can be more tax-efficient, so they may be a better choice for those looking to reduce their tax burdens. **Who should consider mutual funds:** - **Investors with a 401(k):** Many employers sponsor a retirement plan with various benefits, such as matching contributions and payroll deductions. However, these plans often invest in mutual funds and don’t have an ETF option. - **Those who prefer actively managed funds:** Mutual funds are often (but not always) actively managed, so they may be a better choice for investors who want fund managers to pick their investments. - **Those who prefer dollar-cost averaging and automatic investments:** 401(k) plans and brokerage accounts often allow automatic contributions to mutual funds. This makes it easy to regularly invest a set amount. ## Do ETFs and mutual funds pay distributions? Mutual funds may pay capital gains distributions at the end of the year and dividends throughout the year, while ETFs may pay dividends throughout the year. But there’s a difference in these payouts to investors, and ETF investors have an advantage here, too. ETFs may pay a cash dividend on a quarterly basis. Each share will receive a specific amount, so the more shares you own, the higher your total payout. But not all funds offer dividends, even if they do provide a cash payout. For example, fixed income ETFs technically pay out interest instead. ETF distributions can be either qualified or non-qualified. The difference between the two depends on how they are taxed and how long the stock within the ETF is held: - Qualified dividends are paid on stock held by the ETF. The stock must be owned for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date. Qualified dividends are taxed at the [capital gains tax rate](https://www.bankrate.com/investing/long-term-capital-gains-tax/) . - Non-qualified dividends are taxed at ordinary income rates . Mutual funds may also issue a payout, and it may be paid regularly throughout the year. Investors may also be able to take advantage of the rules surrounding qualified dividends to achieve a lower tax rate on payouts. But mutual funds may also expose investors to an additional tax complication. That’s because mutual funds are required to distribute their realized capital gains at the end of the year. While you receive the payout in cash, you may then have to turn around and pay taxes on it to the IRS. These tax considerations don’t apply to mutual funds held in tax-advantaged accounts. Even if the mutual fund isn’t trading a bunch of stocks as part of its strategy, the act of redeeming shares for outgoing investors can force managers to sell shares of the investments in the fund, potentially creating a capital gain. Additionally, if you buy the fund late in the year, you could still be paying a tax bill for events that happened before you made the investment. ## Mutual fund vs. ETF: Which one is safer? In terms of safety, neither the mutual fund nor the ETF is safer than the other due to its structure. Safety is determined by what the fund itself owns. Stocks are usually riskier than bonds, and corporate bonds come with somewhat more risk than U.S. government bonds. But higher risk (especially if it’s diversified) may deliver higher long-term returns. That’s why it’s critical that you understand the characteristics of your investments, and not just whether the fund is an ETF or mutual fund. A mutual fund or ETF tracking the same index will deliver about the same returns, so you’re not exposed to more risk one way or the other. ## Bottom line For many different purposes, an ETF is a better option for investors because it offers some tax advantages, low commissions and easy tradability. But in other specific circumstances, notably for stock index funds, mutual funds can actually be cheaper than ETFs, and if they’re held in a tax-advantaged account, their tax implications are irrelevant anyway. Either way, you need to know what your funds are invested in and how they help you achieve your financial goals. *Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.* Did you find this page helpful? **Why we ask for feedback** Your feedback helps us improve our content and services. It takes less than a minute to complete. Your responses are anonymous and will only be used for improving our website. Help us improve our content Yes No Thank you for your feedback\! Your input helps us improve our content and services. Cite us Share this article Share this article Close ![](https://www.bankrate.com/2021/10/26151853/James-Royal-headshot-scaled-square.jpg?auto=webp&quality=85&width=96&height=96&fit=cover&enable=upscale&crop=1:1,smart) Written by [James Royal, Ph.D.](https://www.bankrate.com/authors/james-royal/) Former Principal Writer, Investing and Wealth Management - [Connect with James Royal, Ph.D. on Twitter](https://twitter.com/JimRoyalPhD) - [Connect with James Royal, Ph.D. on LinkedIn](https://www.linkedin.com/in/james-royal-phd-809b929/) - [Get in contact with James Royal, Ph.D. via Email](mailto:jroyal@redventures.com) [Read more from James](https://www.bankrate.com/authors/james-royal/) Former Bankrate principal writer and editor James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. ![A woman works on her laptop while holding her phone and looking at papers.](https://www.bankrate.com/brp/2024/04/24160259/mutual-funds-vs-etfs.jpg?auto=webp&optimize=high&crop=16:9) FRAME STUDIO/Getty Images Bankrate is always editorially independent. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money . Our Bankrate promise is to ensure everything we publish is objective, accurate and trustworthy. Table of contents - [Mutual funds vs. ETFs: Similarities and differences](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#mutual-funds-vs-etfs) - [ETF vs. mutual fund: Which one should you choose and why?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#etf-vs-mutual-fund) - [Do ETFs and mutual funds pay distributions?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#pay-distributions) - [Mutual fund vs. ETF: Which one is safer?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#which-one-is-safer) Back to top ## You may also like ![woman working in home office](https://www.bankrate.com/brp/2024/08/26183023/What-are-the-pros-and-cons-of-a-variable-annuity_-300x169.jpg) [The pros and cons of variable annuities](https://www.bankrate.com/retirement/what-are-the-pros-and-cons-of-a-variable-annuity/) Retirement By [Logan Jacoby](https://www.bankrate.com/authors/logan-jacoby/) 3 min read ![A couple looks at a laptop computer and documents while working on their investments.](https://www.bankrate.com/brp/2023/03/17162952/Mutual-funds-Pros-and-cons-for-investors-300x169.jpg) [Mutual funds: Pros and cons for investors](https://www.bankrate.com/investing/mutual-funds-advantages-disadvantages/) Investing By [Bob Haegele](https://www.bankrate.com/authors/bob-haegele/) 5 min read ![Letter blocks spelling out "ETF" on a yellow background.](https://www.bankrate.com/brp/2024/07/16154318/Investments-Best-dividend-ETFs-and-how-to-invest-in-them-300x169.jpg) [Best dividend ETFs and how to invest in them](https://www.bankrate.com/investing/best-dividend-etfs/) Investing By [Giovanny Moreano](https://www.bankrate.com/authors/giovanny-moreano/) 5 min read ![ETFs vs. index funds](https://www.bankrate.com/2021/09/02141359/GettyImages-472125687.jpg) [ETFs vs. index funds: Key differences and similarities](https://www.bankrate.com/investing/etf-vs-index-fund/) Investing By [Bob Haegele](https://www.bankrate.com/authors/bob-haegele/) 5 min read ## [Bankrate logo](https://www.bankrate.com/) ### About - [About us](https://www.bankrate.com/about/) - [Leadership](https://www.bankrate.com/leadership/) - [Press room](https://www.bankrate.com/press-releases/) - [Bankrate Data Center](https://www.bankrate.com/data-center/) - [Careers](https://www.bankrate.com/careers/) - [Site map](https://www.bankrate.com/corporate/site-map/) ### Help - [Compare rates](https://www.bankrate.com/compare-rates/) - [Latest news](https://www.bankrate.com/news/) - [Popular topics](https://www.bankrate.com/popular-finance-topics/) - [Advertise with us](https://www.bankrate.com/media-kit/) ### Legal - [Privacy policy](https://www.bankrate.com/privacy/) - Cookie settings - [Do Not Sell or Share My Personal Information](https://www.bankrate.com/do-not-sell-or-share-my-personal-information/) - [Consumer Health Information Privacy Policy](https://www.bankrate.com/consumer-health-information-privacy-policy/) - [Understanding Bankrate’s averages](https://www.bankrate.com/understanding-bankrates-rate-averages/) - [Terms of use](https://www.bankrate.com/terms/) - [GLBA annual notice](https://www.bankrate.com/glba-notice/) - [California Consumer Financial Privacy Notice](https://www.bankrate.com/2022/02/15094901/california-notice.pdf) - [Licenses](https://www.bankrate.com/licenses/) ### How we make money Bankrate.com is an independent, advertising-supported publisher and comparison service. 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Table of contents - [Mutual funds vs. ETFs: Similarities and differences](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#mutual-funds-vs-etfs) - [ETF vs. mutual fund: Which one should you choose and why?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#etf-vs-mutual-fund) - [Do ETFs and mutual funds pay distributions?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#pay-distributions) - [Mutual fund vs. ETF: Which one is safer?](https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/#which-one-is-safer) **Quick citation guide** Select a citation to automatically copy to clipboard. **APA:** Royal, J. (2025, March 25). *ETF vs. mutual fund: Which is the better investment?* Bankrate. Retrieved April 24, 2026, from https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/ Copied to clipboard\! **MLA:** Royal, James. "ETF vs. mutual fund: Which is the better investment?" *Bankrate*. 25 March 2025, https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/. Copied to clipboard\! **Chicago:** Royal, James. "ETF vs. mutual fund: Which is the better investment?" Bankrate. March 25, 2025. https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/. Copied to clipboard\! ![](https://www.facebook.com/tr?id=1805085980359671&ev=PageView&noscript=1) ![](https://www.facebook.com/tr?id=1564326531369118&ev=PageView&noscript=1)

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Mutual funds and exchange-traded funds (ETFs) can both offer many benefits for your investment portfolio, including instant diversification at a low cost. But they have some key differences, in particular, how expensive the funds are. Overall, [ETFs hold an edge](https://www.bankrate.com/investing/what-are-etfs/) because they tend to use passive investing more often and have some tax advantages. Here’s what differentiates a mutual fund from an ETF and which is better for your portfolio. ## Key takeaways - ETFs are typically passively managed funds that trade on an exchange. They often have lower fees and can be purchased throughout the trading day. - Mutual funds are usually actively managed funds that are proprietary and may have higher fees. They are priced at the end of the trading day. - Both fund types allow investors to buy a broad set of securities with a single share. ## Mutual funds vs. ETFs: Similarities and differences [Mutual funds](https://www.bankrate.com/investing/guide-to-mutual-funds/) remain top dog in terms of total assets, thanks to their prominence in retirement plans such as[401(k)s](https://www.bankrate.com/retirement/401k/). U.S. mutual funds had around \$21.7 trillion in total financial assets as of the fourth quarter of 2024, compared to about \$10.3 trillion in[ETFs](https://www.bankrate.com/investing/what-are-etfs/), according to the St. Louis Fed. But ETFs have been growing quickly in the last decade, as investors are drawn by their low fees and ease of trading. Both types of funds allow you to invest in a diversified portfolio by buying just one security. For example, you can buy an index fund based on [the Standard & Poor’s 500 index](https://www.bankrate.com/investing/how-to-buy-sp-500-index-fund/) (S\&P 500) of top American companies as either a mutual fund or an ETF. Or you could buy a portfolio of bonds with either. Some funds allow you to [buy gold](https://www.bankrate.com/investing/ways-to-buy-sell-gold/) or all the companies in a certain industry, for example. ### Mutual funds: An overview Mutual funds are an older way of allowing a group of investors to own a share in a larger portfolio. Mutual funds tend to be actively managed, so they’re trying to beat their benchmark index, and may charge higher expenses than ETFs, including the possibility of sales commissions. Mutual funds typically have minimum initial purchase requirements, and they can be purchased only after the market is closed, when their [net asset value (NAV)](https://www.bankrate.com/investing/what-is-net-asset-value/) is calculated and set. ### ETFs: An overview ETFs are a newer way of allowing investors to own a share in a larger portfolio. ETFs tend to be passively managed, meaning their holdings track a preset index of securities such as the S\&P 500 rather than having a portfolio manager picking them. They generally charge low expenses and have no sales commissions. ETFs usually do not have a minimum initial purchase requirement, though some brokers may not allow you to buy fractional shares of them. ETFs are traded during the day like a stock and their price can fluctuate around their net asset value. Whether you’re buying a mutual fund or an ETF, you can invest in a diverse selection of assets. | Feature | Mutual funds | ETFs | |---|---|---| | **Type of assets** | Stocks, bonds, gold, etc. | Stocks, bonds, gold, etc. | | **Type of fund management** | More actively invested | More passively invested | | **Fund expense ratios** | Higher | Lower | | **Brokerage commissions** | Often \$0, but may range up to \$50 | Typically \$0 | | **Sales commissions (loads)** | Often none, but sometimes 1 or 2 percent | None | | **When you can trade** | Priced at the end of the trading day | Can be purchased throughout the trading day | | **Tax efficiency** | Lower | Higher | ### Active management vs. passive management How a fund actually invests has a lot to do with your costs and potential returns. Some funds engage in what’s called active management, in which the fund’s manager picks and chooses securities to buy and sell, and when to do so. This approach is more typical for mutual funds, though they may also be passively managed. The other approach is called passive investing, and it’s where the fund manager doesn’t select the investments but rather mimics an index that’s already been selected, such as the S\&P 500. This approach is more typical of ETFs, though ETFs may sometimes be actively managed. So generally speaking, mutual funds have been actively managed, whereas ETFs have been passive. But these lines have blurred somewhat and it’s possible to find actively managed ETFs and passively managed mutual funds. This difference matters for a couple key reasons: the returns you’re likely to see as an investor and the [expense ratio](https://www.bankrate.com/investing/what-is-an-expense-ratio/) you’re likely to pay. ### Fund returns and costs Here’s the upshot of the active vs. passive debate: [passive investing does better most of the time](https://www.bankrate.com/investing/active-versus-passive/). In fact, a recent report from S\&P Dow Jones Indices shows that 93 percent of U.S. active managers in large companies were unable to beat the market over a 20-year period ending Dec. 31, 2023. Yes, the best funds can beat their benchmarks (often the S\&P 500) in a given year, but over time it’s tough for active managers to outperform. In passive investing, the goal is not to beat the market, as is usual for active managers. Instead, passive investors are simply looking to *be* the market. And if passive investing outperforms the vast majority of investors, it also means you can beat most active professional managers, too. That gives an advantage to ETFs, which are typically passively managed, though again some mutual funds are also passively managed. You’ll need to read the fund’s prospectus to see. Active management has another downside: it tends to cost more than a passively managed fund. The emergence of lower-cost ETFs has helped reduce the expenses in mutual funds as they are forced to compete. As you can see in the chart below, expense ratios on funds have been falling for the past two decades. Expenses for stock mutual funds still remain above those for ETFs, whether you’re comparing a simple average or an asset-weighted average (factoring in how big the fund is). The simple average gives you an idea of what you’d likely pay if you picked funds at random, while the asset-weighted average tells you what a typical investor might actually be paying. So mutual funds are quite a bit more expensive than ETFs, comparing their respective averages. For example, in 2023, an average mutual fund (asset-weighted) cost 0.42 percent of your assets each year. In practical terms, it would cost \$42 for every \$10,000 you have invested. In contrast, the comparable average index ETF had an expense ratio of just 0.15 percent, or \$15 annually for every \$10,000 invested. But the details differ when you dig in. If you focus on passively managed stock mutual funds, they’re actually cheaper than passively managed stock ETFs, as you can see in the chart below. In 2023, [stock index mutual funds](https://www.bankrate.com/investing/best-index-funds/) charged an average of 0.05 percent (asset-weighted), while a comparable stock index ETF charged 0.15 percent. An actively managed mutual fund may also ding your returns in another way, by running up your tax bill. Because it trades in and out of the market, an actively managed fund recognizes capital gains more frequently than a passively managed fund such as most ETFs. It must pass on some of those taxable [capital gains](https://www.bankrate.com/investing/long-term-capital-gains-tax/) distributions to investors at the end of the year. In addition to these costs, investors in mutual funds may also have to [watch out for sales commissions](https://www.bankrate.com/investing/load-vs-no-load-mutual-funds/), too, which can quickly eat up your principal before you’ve even invested your money. That’s not a cost that’s associated with ETFs — or [the best mutual funds](https://www.bankrate.com/investing/best-mutual-funds/), for that matter. Whether you go with an ETF or mutual fund, be sure to check the expense ratio and any other costs of the fund. Costs are a huge driver of your return, and experts suggest that you focus on those first, especially for index funds, where everyone is tracking the same index anyway. ### Commissions and minimum purchases In the category of commissions, ETF investors are real winners. The big-name brokerages [have slashed commissions to zero](https://www.bankrate.com/investing/commission-free-trading-what-brokers-should-offer-next/) on all ETFs offered on their sites. So it won’t cost you anything to trade these funds, though some brokers may impose an early redemption fee. That’s a huge boon for investors, especially if you like to [dollar-cost average on your purchases](https://www.bankrate.com/investing/dollar-cost-averaging-what-it-is-avoids-timing-market/). But that’s not the case for mutual funds, where some still charge sales commissions (or loads) that might run you 1 or 2 percent of your money but sometimes even more. Fortunately, many good mutual funds no longer charge these fees, and it’s relatively easy to avoid them. Otherwise, you’re paying to enrich the fund-management firm at the expense of your returns. And brokerages may also charge you a fee for trading mutual funds — some may run nearly \$50 per trade — though [the best brokers offer many funds without a trading commission](https://www.bankrate.com/investing/best-online-brokers/). As for a minimum purchase amount, ETFs often have an advantage here, too. Usually a broker may require you to buy at least one share of a fund in order to make a purchase, though these days many [brokerages allow you to buy fractional shares](https://www.bankrate.com/investing/best-brokers-fractional-share-investing/). Even if you have to buy a full share, that might cost you as little as \$20 up to perhaps \$250, still a relatively small amount. In contrast, some mutual funds may require you to purchase at least \$2,500 to get started, if you’re opening your own individual account, with smaller minimum subsequent deposits. Some mutual funds also charge early redemption fees if you sell your position in less than 30 days. ### When you can buy mutual funds and ETFs The time and frequency when you can purchase a mutual fund or ETF differs. Mutual funds are priced only at the end of each trading day. While you can place your order at any time, it won’t be filled until the exact price of the fund is tallied up at day’s end. So you won’t know what you’re paying until the transaction is complete. But you’ll always pay the exact net asset value of the fund’s holdings. In contrast, an ETF trades like a stock on an exchange, and you can buy whenever the market is open. You can place your buy or sell order as you would for a stock and see the exact price you pay when the order is executed. Unlike a mutual fund, you may end up paying more or less than the fund’s actual net assets, though the difference is usually negligible. This trading flexibility has helped make ETFs a popular way to invest. ## ETF vs. mutual fund: Which one should you choose and why? In many ways mutual funds and ETFs do the same thing, so the better long-term choice depends a lot on what the fund is actually invested in (the specific stocks and bonds, for example). For instance, mutual funds and ETFs based on the [S\&P 500 index](https://www.bankrate.com/investing/what-is-sp-500/) are largely going to perform the same for you. But actively managed funds may have widely different results, depending on how they’re invested. Where the differences come in, however, are in the fees, commissions and other costs associated with your choice. And in these respects, ETFs have an edge on mutual funds. They also have an edge in terms of their tax efficiency, helping to reduce your overall tax burden. **Who should consider ETFs:** - **Investors who want to save on fees:** While mutual fund fees have dropped in recent years, ETFs tend to have lower fees. - **Self-directed investors:** ETFs trade on exchanges, so you can buy them anywhere stocks are sold. - **Passive investors:** ETFs are ideal for buy-and-hold investors seeking long-term exposure to broad funds like those that track the S\&P 500. - **Tax optimizers:** ETFs can be more tax-efficient, so they may be a better choice for those looking to reduce their tax burdens. **Who should consider mutual funds:** - **Investors with a 401(k):** Many employers sponsor a retirement plan with various benefits, such as matching contributions and payroll deductions. However, these plans often invest in mutual funds and don’t have an ETF option. - **Those who prefer actively managed funds:** Mutual funds are often (but not always) actively managed, so they may be a better choice for investors who want fund managers to pick their investments. - **Those who prefer dollar-cost averaging and automatic investments:** 401(k) plans and brokerage accounts often allow automatic contributions to mutual funds. This makes it easy to regularly invest a set amount. ## Do ETFs and mutual funds pay distributions? Mutual funds may pay capital gains distributions at the end of the year and dividends throughout the year, while ETFs may pay dividends throughout the year. But there’s a difference in these payouts to investors, and ETF investors have an advantage here, too. ETFs may pay a cash dividend on a quarterly basis. Each share will receive a specific amount, so the more shares you own, the higher your total payout. But not all funds offer dividends, even if they do provide a cash payout. For example, fixed income ETFs technically pay out interest instead. ETF distributions can be either qualified or non-qualified. The difference between the two depends on how they are taxed and how long the stock within the ETF is held: - Qualified dividends are paid on stock held by the ETF. The stock must be owned for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date. Qualified dividends are taxed at the [capital gains tax rate](https://www.bankrate.com/investing/long-term-capital-gains-tax/) . - Non-qualified dividends are taxed at ordinary income rates . Mutual funds may also issue a payout, and it may be paid regularly throughout the year. Investors may also be able to take advantage of the rules surrounding qualified dividends to achieve a lower tax rate on payouts. But mutual funds may also expose investors to an additional tax complication. That’s because mutual funds are required to distribute their realized capital gains at the end of the year. While you receive the payout in cash, you may then have to turn around and pay taxes on it to the IRS. These tax considerations don’t apply to mutual funds held in tax-advantaged accounts. Even if the mutual fund isn’t trading a bunch of stocks as part of its strategy, the act of redeeming shares for outgoing investors can force managers to sell shares of the investments in the fund, potentially creating a capital gain. Additionally, if you buy the fund late in the year, you could still be paying a tax bill for events that happened before you made the investment. In terms of safety, neither the mutual fund nor the ETF is safer than the other due to its structure. Safety is determined by what the fund itself owns. Stocks are usually riskier than bonds, and corporate bonds come with somewhat more risk than U.S. government bonds. But higher risk (especially if it’s diversified) may deliver higher long-term returns. That’s why it’s critical that you understand the characteristics of your investments, and not just whether the fund is an ETF or mutual fund. A mutual fund or ETF tracking the same index will deliver about the same returns, so you’re not exposed to more risk one way or the other. ## Bottom line For many different purposes, an ETF is a better option for investors because it offers some tax advantages, low commissions and easy tradability. But in other specific circumstances, notably for stock index funds, mutual funds can actually be cheaper than ETFs, and if they’re held in a tax-advantaged account, their tax implications are irrelevant anyway. Either way, you need to know what your funds are invested in and how they help you achieve your financial goals. *Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.* Did you find this page helpful? Help us improve our content

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