Background

A mutual fund is a company that uses money from many investors to buy stocks or other securities. Management of a mutual fund can be active, where managers buy and sell securities attempting to get a high return, or passive, where securities are mostly bought and held.

ETFs

Although like an index fund in which ETF buys securities to track a market index, ETFs are not mutual funds. Rather ETFs trade in the same way that company stocks trade on a stock exchange. While the net-asset value (NAV) of a mutual fund is calculated at the end of each trading day, the price of an ETF changes throughout the day, just as a company stock price changes.

Trading

Index funds are a passive investment, where you buy shares and then sell them when ready. In comparison, you can trade ETF shares the same way that you would trade stocks.

Expert Insight

References

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