How do you tell the difference between an alligator and a crocodile?
How about between jam and jelly?
In the investment world, mutual funds and exchange traded funds (ETFs) fall into that “how do you tell them apart?” group, too.
At first glance, these two fund types may seem very similar. Both are professionally managed. Both allow investors the opportunity to pool their money. And both can hold a wide range of securities.
“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” Proverbs 13:11
How Mutual Funds and ETFS are Similar | ||||||||||||||||||
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Mutual fund investors
can redeem their
investments daily. | ETFs are traded
throughout the day,
just like stocks. | |||||||||||||||||
Past performance isn’t an indication of how an investment will perform in the future. | Past performance isn’t an indication of how an investment will perform in the future. | |||||||||||||||||
You can find the top holding through online resources. | You can find the top holding through online resources. | |||||||||||||||||
How Mutual Funds and ETFS are Different | ||||||||||||||||||||
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Mutual funds are required by law to price their shares at net asset value (NAV) each business day, and they typically do so after the major U.S. stock exchanges close. | ETFs also calculate their NAV each day, but the per-share price can be higher or lower than the per-share NAV. This price difference is known as a discount to its NAV or a premium to its NAV. | |||||||||||||||||||
Investors can purchase and redeem shares in a mutual fund when needed. Mutual funds are typically priced at the end of the trading day | With ETFs, pricing is continuous throughout the day, and ETFs can be bought or sold at any time. | |||||||||||||||||||
With mutual funds, a tax liability can occur when the fund manager sells holdings during the year if they have capital gains. The fund owner does not have control over what the fund manager does. | ETFs generally give investors more control over their tax liabilities. An investor can choose when to sell ETF shares—basically deciding if or when a capital gains liability occurs. | |||||||||||||||||||
But when you’re building a portfolio, mutual funds and ETFs play very different roles. As you will see from the tables below, both investments have pros but they also have cons that need to be factored in when adding them to an account.
Remember:
Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. We can send you a prospectus for any mutual fund or ETF in which you are interested. We encourage you to read the prospectus carefully.
In case you were wondering:
An alligator has a wide, U-shaped snout and its lower teeth aren’t visible when its mouth is closed. By contrast, a crocodile has a narrow, V-shaped snout. Its lower teeth are visible when its mouth is closed.
And jelly is firm and clear, and it is often made from fruit juice. Jam is a less firm spread. It is semi-transparent and made from crushed or pureed fruit.
- FINRA.org, 2025
