Learn trading ideas & strategies from TradeKing's experts

Upcoming Live Events
More live events...
Learn it. Trade it.

Open your TradeKing account today!

Upcoming Live Events
More live events...

Comparing ETFs and Index Mutual Funds


Exchange-traded funds and index mutual funds are very similar investments in some ways. Both can provide a source of diversification for your portfolio and a means to follow a particular sector or index. However, this is where the similarities end. As noted below, there are several differences that can make one of these investments a better choice for your portfolio. Please take some time to let these differences soak in. After all, these variations may make the distinction between reaching your investment goals and falling short of the mark.

Before investing in any mutual fund or exchange-traded fund, carefully consider information contained in the prospectus, including investment objectives, risks, charges and expenses. Free prospectuses may be ordered from the fund company or send a request to service@tradeking.com. Many but not all prospectuses are available online. Not all mutual funds are available through TradeKing. Read the prospectus carefully before investing. Investment returns will fluctuate and are subject to market volatility so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the fund company. Some specialized exchange-traded funds can be subject to additional market risks.



Feature

ETFs

Index Mutual Funds

Intra-day trading

Yes

No, orders placed during the day are executed at the close of trading

Diversification across a number of securities

Yes

Yes

Tracks index or sector

Yes

Yes

Buy on margin

Yes

No

Sell short

Yes

No

Expenses

Brokerage fees are incurred with each transaction, and there is a spread between bid and ask prices

May have any or all of the following:

  • management fees
  • 12b-1 fees
  • redemption fees
  • sales loads

Tax considerations

ETFs typically make fewer capital gains distributions

Must distribute any capital gains and dividends annually to investors, which may create a taxable event

Redemptions

Must be sold through a broker

Shares may be redeemed directly with fund company






Related Strategies

414 Short Strangle Image
Short Strangle A short strangle gives you the obligation to buy the stock at strike price A and the obligation to sell the stock at strike price B if the options are assigned. You are...

353 Long Calendar w/ Calls Image
Long Calendar Spread with Calls When running a calendar spread with calls, you’re selling and buying a call with the same strike price, but the call you buy will have a later expiration date than the...

403 Inverse Skip Strike Butterfly w/ Puts image
Inverse Skip Strike Butterfly with Puts You can think of this strategy as a put backspread with a twist. Instead of simply running a back spread with puts (sell one put, buy two puts), selling the extra put at...

More strategies...

All-Star Analysis

960.css on 07/03/2012
/* 960 Grid System ~ Core CSS. Learn more ~ http://960.gs/ Licensed under GPL and MIT. */ /* Forces backgrounds to span full...

Do you think the markets are efficient? on 02/05/2013
I am always wary when I’m about to embark on a flight of philosophic fancy, not that I’m worried whether it will bore you. Heck, I could...

Using Fundamental Analysis | Fundamental Analysis Explained on 12/04/2015
Fundamental analysis is the foundation of solid investing. It helps you determine the underlying health of a company by examining the...

More analysis...

On-Demand Videos

Swing Trading with Stock (Downtrend)

Learn the basics of swing trading and how this can become a new tool in your trader's toolkit. From finding the...


Income Strategies, part 1: Credit Spreads

Join Dan Passarelli to discover the possibility of generating income with credit spreads. When used wisely, these...


Screening Stocks with TradeKing's Strategy Builder

With so many stocks available for trading, narrowing down your focus can be tough. TradeKing helps make this process...


More videos...