ETFs vs. mutual funds
They're similar—but they're different in some very key ways. We'll help you compare.
How are ETFs and mutual funds alike?
Similar structure
Mutual funds and the majority of Exchange Traded Funds (ETFs) represent managed "baskets" or "pools" of individual securities, like stocks or bonds.
Management styles
ETFs and mutual funds can be designed to track an index or actively managed to outperform an index.
Exposure opportunity
ETFs and mutual funds offer exposure to a wide variety of asset classes and niche markets. They generally provide more diversification than a single stock or bond, and they can be used to create a diversified portfolio when funds from multiple asset classes are combined.
How are ETFs and mutual funds different?
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ETFsETFsMutual FundsMutual Funds
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How are they managed?ETFsWhile they can be actively or passively managed by fund managers, most ETFs are passive investments pegged to the performance of a particular index.Mutual FundsMutual funds come in both active and indexed varieties, but most are actively managed. Active mutual funds are managed by fund managers.
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How are they traded?ETFsETFs trade like stocks and are bought and sold on a stock exchange, experiencing price changes throughout the day. This means that the price at which you buy an ETF will likely differ from the prices paid by other investors.Mutual FundsMutual fund orders are executed once per day, with all investors on the same day receiving the same price.
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What's the minimum investment?ETFsBecause they trade like stocks, ETFs do not require a minimum initial investment and are purchased as whole or fractional shares or fixed dollar amounts. You can buy an ETF for the price of just one share, usually referred to as the ETF's "market price."Mutual FundsMinimum initial investments for mutual funds are normally a flat dollar amount and aren’t based on the fund's share price.
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What are the costs?ETFs
ETFs have implicit and explicit costs. While your broker will disclose the cost of trading commissions and the ETF provider will disclose the operating expense ratio, don't overlook the bid/ask spread and premium/discount to NAV. These costs are implicit and result from buying or selling an ETF in the market at a price which may differ from the value of the ETF's underlying holding.
Read ETFs: How much do they really cost?Mutual FundsMutual funds can be purchased without trading commissions, but in addition to operating expenses they may carry other fees (for example, sales loads or early redemption fees).-
What about tax efficiency?ETFsETFs can potentially generate fewer capital gains for investors since they may have lower turnover and can use the in-kind creation/redemption process to manage the cost basis of their holdings.Mutual FundsA sale of securities within a mutual fund may trigger capital gains for shareholders—even for those who may have an unrealized loss on the overall mutual fund investment.
Want to learn more?
ETF or mutual fund? Which is right for you?
That all depends on your goals and the type of investor you are.
Consider an ETF, if:
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You trade actively
Intraday trades, stop orders, limit orders, options, and short selling—all are possible with ETFs, but not with mutual funds.
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You're tax sensitive
ETFs and index mutual funds tend to be generally more tax efficient than actively managed funds.
And, in general, ETFs tend to be more tax efficient than index mutual funds.
Consider an index mutual fund, if:
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You invest regularly
If you make regular deposits—for example, you use dollar-cost averaging—a no-load index mutual fund can be a cost-effective option. Mutual funds can be purchased in fixed dollar amounts and fractional shares, helping ensure your full contribution is invested each time.
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You want to avoid bid/ask spreads
When you buy or sell ETF shares, the price may be less than the net asset value (or, NAV) of the ETF. This discrepancy (aka: the "bid/ask spread") is often nominal, but for less actively traded ETFs, that might not always be the case.
By contrast, mutual funds always trade at NAV, without any bid/ask spreads.
Consider an actively managed mutual fund, if:
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You're looking for a fund that could potentially outperform its benchmark index
People invest in actively managed mutual funds in hopes they'll surpass their benchmarks.
Also, actively managed funds acquired as part of a specific strategy may complement index funds in a portfolio, and help to mitigate downside risk and mitigate market volatility.
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You believe professional managers can add value in certain markets
Some markets are "highly efficient"—which means they’re so popular, there isn't much opportunity to add any real value via active portfolio management.
But in less efficient markets–like high-yield bonds or emerging markets–there may be greater opportunities through active portfolio management.
ETFs and mutual funds, at a glance:
ETFs and mutual funds, at a glance:
ETFs and mutual funds at a glance-
Passive ETFsPassive ETFsActive ETFsActive ETFs
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Passive ETFsGenerally lower than actively managed mutual funds.Active ETFsGenerally higher than passive ETFs; on par with a mutual fund’s institutional share class.Generally lower than actively managed mutual funds.Generally higher than passively managed, index-tracking funds
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PerformancePassive ETFsPerformance generally seeks to track a benchmark indexActive ETFsPerformance seeks to outperform a benchmark index.Performance seeks to track a benchmark index.Performance seeks to outperform a benchmark index.
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Selection of FundsPassive ETFsOver 5,000Active ETFsOver 3,000 actively managed ETFs and about 20 active semi-transparent ETFsAbout 300*About 4,900*
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TradingPassive ETFsIntradayActive ETFsIntradayEnd of DayEnd of Day
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PricePassive ETFsActive ETFs
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Passive ETFsGenerally efficientActive ETFsGenerally efficientGenerally efficientLess efficient
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Holdings TransparencyPassive ETFsHoldings generally reported dailyActive ETFsActive semi-transparent ETFs generally report full holdings on a monthly or quarterly basis, whereas actively managed ETFs will report holdings daily
*Oldest share classes of funds available in the U.S. as reported by Morningstar Direct, September 2026
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ETFs at Schwab
Choose from 5,000+ commission-free listed ETFs,1 including Schwab's low-cost market cap index ETFs.2
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