Difference between Mutual funds and ETFs
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Investors are often faced with a wide array of choices. From stocks and bonds to selecting from different sectors and industries, it can get tricky to make the right pick. Exchange traded funds (ETFs) and mutual funds are two popular investment options that are created from the concept of pooled fund investing. They each have their advantages and disadvantages.
This article helps you understand both investment options and their differences.
Mutual funds are professionally managed investment funds that trade in diversified holdings. Professionals with advanced skills and knowledge invest the funds which are pooled from various investors into a different class of assets. Mutual fund investments can be made into bonds, stocks, money market instruments or a combination of all. There are three main types of mutual funds – equity funds, debt funds also known as liquid funds, and balanced funds.
As the name suggests, ETFs are investment funds that trade on the stock exchanges similar to common stocks. The assets held under ETFs are bonds, stocks and commodities. ETFs can be used for hedging, arbitrage and raising cash.
Both ETFs and mutual funds allow you to buy a basket of securities within one investment security. However, there are many differences between the two. Let us have a look.
For building a diversified portfolio, ETFs and mutual funds can be complementary to each other. Each of the instruments can meet specific needs and help you accumulate long-term wealth. While ETFs can appeal more to index fund investors, mutual funds can offer a more comprehensive selection of actively managed funds.
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