DIFFERENCE BETWEEN MUTUAL FUND AND ETF

MUTUAL FUNDS : Mutual funds is a single , large and professionally managed Investment organization. That pools the saving of individual Investors and after making proper study of the market and the companies invest it in corporate securities. The return generated out of such Investments after charging the fees of portfolio managers are distributed among the investors.

       The Security And Exchange Board Of India defines a mutual fund as , " A fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more scheme for Investing in securities , Including money market instruments . "

      The Mutual fund serve as a link between the Investors and the securities market by mobilizing the savings from the Investors and Investing them into the securities market to generate returns . Mutual funds offers an opportunities to invest in a diversified portfolio inspite of having less funds, service of good research team along with transparency therefore it is a most suitable form of Investment for a common man. 

CHARACTERISTICS/ NATURE OF MUTUAL FUNDS :

1. Mutual funds is a non-depository or non-banking financial intermediary.

2. Mutual funds mobilize the savings from the people and invest them in the mix of corporate and government securities.

3. Mutual funds brings a variety of securities within the reach of the most modest investors.

4. Mutual funds works as the representative of the investors.

5. Mutual funds are controlled and regulated by SEBI and are therefore considered to be safe.

EXCHANGE TRADED FUNDS (ETFs) : ETFs or exchange traded funds were started in 2001 in India. They are similar to Index mutual funds . However they trade just like stock. ETFs are a pool of Investment that provides exposure to an area of the market. You can invest in stocks, commodities , currencies and other options. It helps us in buying shares from any brokerage at your convenience time. The price of the ETFs can vary throughout the day. ETFs have lower fees and higher daily liquidity compared to mutual fund shares. Most ETFs are registered with the SEBI. ETFs funds are listed on all major stock exchange and can be bought and sold as per requirements during the equity traded time.

      The value of the dividend received by the shareholders of ETFs depends upon the performance and asset management of the concerned ETF company . They can be actively or passively managed as per company norms. Actively managed ETFs are operated by a portfolio manager. While the passive managed ETFs follow the trends of specific market indices. An exchange-traded fund is a hybrid investment vehicle which amalgamates the features of an Index fund and mutual funds.

      One of the main difference between the two is the fact that you can buy a share of ETF through a brokerage like stocks, not through a fund management company that sells mutual funds. ETF shareholders get a part of the profits i.e the dividend paid and interest earned. They may also get a residual value if there is a liquidation of the fund.

CHARACTERISTICS / NATURE OF ETFs :

1. Investors can sell short or buy on margin. They can also purchase one share, as there are no minimum investment requirements.

2. An investor who buys an ETF doesn't have to pay an management fees to the fund manager and taxes are relatively lower in ETFs.

3. The ETFs are designed to replicate the performance of the commodity or the underlying index. The investors always know exactly what they are buying.

4. The ETFs have a low annual fee as compared to additional mutual funds.

5. ETFs are a good investment option for the small investors. The arbitrageurs ensure that the ETF prices are kept close to the underlying securities.

ETF VS MUTUAL FUNDS :

1. Mutual funds are traded at the closing net asset value while the ETF are traded during the course of a trading day it's value varies during the time.

2. Mutual funds have varying operating expenses on the other hands , ETF has lower operating expenses.

3. Most mutual funds have a minimum expense specified. There is no minimum invest expense specified.

4. Mutual funds have more tax liabilities. While ETFs offers tax benefits to invest due to the manner of creation and redemption.

5. Some mutual funds levy a penalty on selling the share early usually the time imposed on selling a share is 90 days from the date of purchase. While ETF do not have a time limit on selling an asset. The investor can buy or sell at any point of trading day at a price available during the time. Therefore, there is no minimum holding period specified for the same.

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