Both Mutual Funds and Exchange Traded Funds (ETFs) share similar structures in that both are made up of baskets of specific securities, in the vast majority of cases, bonds or stocks. Similarly, they both offer exposure to a wide variety of asset classes and guarantee a more diversified investment strategy than selecting a single stock of bond. There are, however, many important differences which investors should consider when thinking about which option might be the best way forward for them.
The first thing to consider is how ETFs and Mutual Funds are managed. While both can be managed either actively or passively, the majority of Mutual Funds are actively managed. This means that a fund manager manages the underlying investments of the fund and takes decisions on individual securities within the fund. ETFs, on the other hand, tend to be passively managed meaning that their performance is simply pegged to that of the index or basket of securities to which it is linked.
It is also important to remember that ETFs and Mutual Funds are traded differently. ETFs are bought and sold on a stock exchange which means they trade like stocks and, therefore, their price can fluctuate throughout any trading day. Mutual Fund orders, meanwhile, are executed once a day, meaning that all buyers and sellers on a given day get the same price.
The fact that ETF’s trade like stocks also makes a difference to the minimum investment required when compared with Mutual Funds. To buy an ETF, you just need to be able to purchase one share. Mutual Funds tend to set a specific amount as an entry level for investment, regardless of the actual price of the fund on that particular day. MeDirect has a wide selection of Mutual Funds on its platform that can be accessed with just a minimum of €100.
Trading ETFs and Mutual Funds also means different cost structures. You can read MeDirect’s Tariffs & Charges for Investment Services here to learn more. It’s also important to read all the relevant documentation before making an investment to see what charges the ETF provider or Mutual Fund manager might be applying. Also keep in mind that there may be a difference between the price of an ETF and the price of its underlying asset.
At the end of the day, both Mutual Funds and ETFs can be an effective way to diversify an investment portfolio. You can find more information about the ETFs and Mutual Funds available on MeDirect’s platform here and check out our Investments FAQs here. If you require any further information or assistance, please feel free to contact us via secure chat through the MeDirect mobile app or online banking platform. During office hours, we can also be reached on +356 2557 4400.
MeDirect Bank (Malta) plc, company registration number C34125, is licensed to undertake investment services under the Investment Services Act (Cap. 370). If you invest in ETFs and Mutual Funds you may lose some or all of the money you invest. The value of your investment may go down, as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any decision to invest should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect.