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Watch the Account Minimum. Mutual funds often have an account minimum. By contrast, an ETF has no account minimum; you can buy as many or as few shares as you wish. The growth of exchange-traded funds ETFs has been explosive.
At first glance, ETFs have a lot in common with mutual funds. Both offer shares in a pool of investments designed to pursue a specific investment goal. And both manage costs and may offer some degree of diversification, depending on their investment objective. Diversification is an approach to help manage investment risk.
It does not eliminate the risk of loss if security prices decline. The resulting collection of stocks, bonds, and other securities is professionally managed by an investment company. ETFs work in reverse. An investment company creates a new company, into which it moves a block of shares to pursue a specific investment objective. The investment company then sells shares in this new company. Mutual funds, on the other hand, are not listed on stock exchanges and can be bought and sold through a variety of other channels — including financial advisors, brokerage firms, and directly from fund companies.
The price of an ETF is determined continuously throughout the day. Most mutual funds are priced at the end of the trading day. So, no matter when you buy a share during the trading day, its price will be determined when most U. There are tax differences, as well.
Since most mutual funds are allowed to trade securities, the fund may incur a capital gain or loss and generate dividend or interest income for its shareholders.
With an ETF, you may only owe taxes on any capital gains when you sell the security. An ETF also may distribute a capital gain if the make-up of the underlying assets is adjusted. Determining whether an ETF or a mutual fund is appropriate for your portfolio may require an in-depth knowledge of how both investments operate. In fact, you may benefit from including both investment tools in your portfolio. Amounts in mutual funds and ETFs are subject to fluctuation in value and market risk.
Shares, when redeemed, may be worth more or less than their original cost. Investment Company Institute, January 30, Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing.
A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. Mutual funds and exchange-traded funds have similarities — and many differences. The chart below gives a quick rundown. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice.
It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
Copyright FMG Suite. Each day, the Fed is behind the scenes supporting the economy and providing services to the U. At a Glance Mutual funds and exchange-traded funds have similarities — and many differences. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.