section header ETF fundamentals
subsection header Basics
ETFs and mutual funds serve the same general purpose. They provide exposure to particular markets or market segments. So it's not surprising that they share more similarities than differences.
Mutual funds (Index/actively managed)
|ACCESS||Shares bought and sold through a stockbroker or platform offering brokerage services||Shares bought and sold directly through the fund company or through a fund distributor|
|PRICING||Share prices set by a the market throughout the trading day||Net asset values determined once per trading day, after financial markets close|
|AVERAGE EXPENSE RATIO IN MEXICO||0.76%1||1.15%1|
|TRANSACTION COSTS||Brokerage commissions and bid-ask spreads on each direct purchase and sale||Sales charge (for most funds)|
|DIVIDEND REINVESTMENT||Availability depends on the broker or platform, who may charge for the service||Generally available at no charge|
|CLIENT SERVICES||Provided by the broker or platform||Provided by the fund company or distributor|
1 Source: Vanguard calculations using data from Morningstar as of December 31, 2018.
By pooling money from many investors, ETFs and mutual funds have greater buying power, enabling them to buy many different securities in large quantities. This results in greater diversification than an investor can achieve buying individual stocks and bonds. ETFs, like mutual funds, can also provide diversified exposure to many segments of the market.
Compared with actively managed funds, indexed ETFs and index mutual funds are extremely transparent. Investors generally know what the holdings are and in what proportion based upon the target index, particularly when a full replication strategy is used to track the index. Learn more.
Orders to buy or sell ETF shares are executed throughout the trading day at market-determined prices that change continually. On the other hand, an order to purchase or redeem mutual fund shares is executed at the end-of-day price, known as net asset value. Learn more.
Both ETFs and mutual funds charge an expense ratio which essentially covers ongoing operating costs. But because ETFs trade on exchanges, they also have unique costs not associated with mutual funds. Learn more.