Question

Describe the distinct similarities / differences between ETFs and Mutual Funds. Which is more expensive to invest with and why?

Answer 1

Similarities between ETFs and Mutual Funds

• ETFs and Mutual Funds consist of a basket of stocks. The objective of both could be to tract the performance of an index closely
• They both pool the investors money and invest in the underlying stocks.

Differences between ETFs and Mutual Funds

• ETFs are traded on the exchange, just like stocks are traded. But, one can buy and sell mutual funds only at the end of the day.
• ETFs are typically passively managed, while mutual funds are actively managed

Mutual funds are more expensive to invest because the expense ratio in mutual funds is higher than that in ETFs.