1. Both can be actively managed by professional money managers who make decisions about what assets to buy and sell to achieve the portfolios investment objectives
Read on as we explore the similarities and differences between mutual funds and ETFs so that you can make an informed decision about which product is best for your financial objectives.
What are Mutual Funds & ETFs?
Before we compare Mutual Funds and ETFs, it's essential to understand how these two key investment vehicles work:
Mutual Funds
A mutual fund is a type of investment vehicle that allows investors to pool their money and invest in various securities, such as stocks, bonds, and other assets. Active mutual funds are managed by professional money managers who seek to generate a return on investment by carefully selecting the underlying securities in the fund’s portfolio.
Mutual funds offer several benefits to investors, including diversification, professional management, and liquidity. However, mutual funds also come with some risks, such as market risk and fees. Overall, mutual funds can be a good option for investors looking for a way to grow their portfolios without actively managing their investments.
ETFs
ETFs, or exchange-traded funds, are a type of investment fund that trades on a stock exchange. ETFs typically track an index, such as the S&P/TSX Composite Index, or a commodity, such as gold. Unlike traditional mutual funds, ETFs can be purchased and sold daily on an exchange. ETFs are increasingly popular with investors because they offer diversification benefits at a lower cost than traditional mutual funds.
For example, an investor who wants to buy the S&P 500 index can do so by purchasing an ETF that tracks that index. The investor would then own a small piece of each of the 500 companies in the index, rather than buying each stock individually.
Similarities
Here are some key similarities between ETFs and mutual funds:
2. Active funds are both managed by professional money managers who make decisions about what assets to buy and sell to achieve the fund's investment objectives.
3. Both help investors follow an index investing strategy.
4. Both are regulated by the securities regulators of Canada's provinces and territories.
Differences
Here are some key differences between ETFs and mutual funds:
1. ETFs are traded on stock exchanges, while mutual funds are not.
2. ETFs typically have lower fees than mutual funds.
3. ETFs can be bought and sold throughout the day, while mutual fund shares are only traded once a day after the market closes.
4. Mutual funds typically have a minimum investment requirement, while ETFs do not.
Why invest in them?
By investing in mutual funds or ETFs, you can access the expertise of investment professionals at low cost.
Talk with your financial advisor about adding mutual fund or ETF shares to your portfolio, or you can purchase shares directly through your online brokerage account.