Difference between ETF and Conventional Mutual Funds
Following are the major difference between ETF and Conventional Mutual Funds :
- Mutual funds are traded throughout fund house where as in an ETF transactions are done through a broker as buying and selling is done on the stock exchange.
- In conventional mutual funds units can buy and redeemed only at the applicable NAV which is confirmed only once at the end of the day. ETFs can be bought and sold at any time throughout market hours like a stock. As a result ETF investors have the advantage of real time pricing and they can take benefit of intra-day volatility.
- Yearly expenses charged to investors in an ETF are significantly less than the vast majority of mutual funds. Most of the mutual funds have an entry or exit load varying between 2.00% and 2.25%. ETFs do not have any such loads. As an alternative ETF investors have to pay a brokerage to the broker while transacting which in most cases is not more than 0.5%.
- ETFs maintain the interests of long-term investors. This is because ETFs are traded on exchange and fund managers do have to keep cash in hand in order to meet redemption pressures.