Similarities and Difference between ETF (Exchange Traded Fund) and Mutual Fund (or Unit Trust)
🏦 Structure:
· Both ETFs and mutual funds pool money from multiple investors to invest in a diversified portfolio of assets (e.g., stocks, bonds, or commodities).
· ETFs trade on stock exchanges throughout the day, similar to individual stocks.
· Mutual funds are priced once daily based on their net asset value (NAV) and can only be bought or sold at the end of the trading day.
👨💼Management Style:
· ETFs are typically passively managed, tracking market indexes or specific sectors. Mutual funds can be actively managed by fund managers who aim to outperform the market.
· Mutual funds’ performance depends on the expertise of their portfolio managers. ETFs rely on passive tracking of indexes, reducing the need for active management.
· However, there are actively managed ETFs and index-based mutual funds available as well.
💰Cost and Liquidity:
· ETFs tend to be more cost-effective due to lower expense ratios and the ability to trade throughout the day. Mutual funds may have higher fees and only allow transactions once daily.
· On average, mutual funds have a higher minimum investment requirement than ETFs. Some mutual funds have no minimum investment, but typical retail funds require between $500 and $5,000.
· ETFs have no specific minimum investment requirement.
👍👎 Pros and Cons:
· ETFs: Pros include liquidity, diversification, and low costs. Cons include potential tracking error and lack of active management.
· Mutual funds: Pros include professional management and regulatory oversight. Cons include higher fees and less liquidity.
See the interview on CNA’s Money Mind 2024/2025: ETFs vs Mutual Funds
https://www.mewatch.sg/watch/Money-Mind-2024-2025-E7-ETFs-vs-Mutual-Funds-459398
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Kenny Loh is a distinguished Wealth Advisory Director with a specialization in holistic investment planning and estate management. He excels in assisting clients to grow their investment capital and establish passive income streams for retirement. Kenny also facilitates tax-efficient portfolio transfers to beneficiaries, ensuring tax-efficient capital appreciation through risk mitigation approaches and optimized wealth transfer through strategic asset structuring.
In addition to his advisory role, Kenny is an esteemed SGX Academy trainer specializing in S-REIT investing and regularly shares his insights on MoneyFM 89.3. He holds the titles of Certified Estate & Legacy Planning Consultant and CERTIFIED FINANCIAL PLANNER (CFP).
With over a decade of experience in holistic estate planning, Kenny employs a unique “3-in-1 Will, LPA, and Standby Trust” solution to address clients’ social considerations, legal obligations, emotional needs, and family harmony. He holds double master’s degrees in Business Administration and Electrical Engineering, and is an Associate Estate Planning Practitioner (AEPP), a designation jointly awarded by The Society of Will Writers & Estate Planning Practitioners (SWWEPP) of the United Kingdom and Estate Planning Practitioner Limited (EPPL), the accreditation body for Asia.
