ETFs vs Mutual Funds: For a general investor who has a basic idea about the market, mutual funds and exchange-traded funds are not a new subject for them. In simpler words, they both are related to a liquid basket of stocks. Other assets seen by the investors can help them diversify their portfolio. Let’s now understand what the difference is between ETFs and Mutual funds, and does the trade works in them.

ETF Working Pattern:

In ETFs, they are traded like stocks; investors buy and sell the stocks on the stock exchange. The main important point here is that ETF investors know their exact price when they do the transaction.

Mutual Funds Working Pattern:

In Mutual funds, investors directly transact with the fund itself, and they also won’t know the exact share price of the transaction until the end of the day.  This is the basic difference in the working pattern between ETFs and Mutual funds.

What is the transaction Mode of ETFs and Mutual Funds?

In Mutual funds, investors use the cash mode for the transaction for buying and selling stocks. But, for ETFs, investors use a completely different mode for transactions. They use a mode called “in-kind” transaction for trading purposes. Basically, this means trading securities rather than cash; since there is no sale, there is no capital-gains tax.

Also Read: Best Railway Stock to Invest: RNVL or Ircon International?

ETFs Vs Mutual Funds: Which one is cheaper?

According to the experts, it is said that ETFs are considered to be cheaper for investors compared to Mutual funds. For this, the basic comparison is that the average asset-weighted investment fee for ETFs was 0.42% but for mutual funds, this was around 0.57%; these numbers are recorded in 2024.

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