ETFs and mutual funds: the differences

Structure: the same idea, two wrappers

In both cases a manager holds the securities and you hold units of the fund. You do not directly own the shares in the basket: you own a share of the whole. Distributions from the basket — dividends, interest — flow to unitholders according to the fund's rules.

The structural difference is where the unit changes hands. An ETF unit trades on an exchange, between investors, like a stock. A mutual fund unit is bought from and sold back to the fund itself, which creates or cancels units with each transaction.

Trading: continuous versus once a day

This is the difference you notice day to day.

An ETF trades continuously during market hours. Its price moves through the session, and order types apply — market order, limit order (see Market order vs limit order). That price is what supply and demand establish; it tracks the value of the underlying basket without being identical to it at every instant.

A mutual fund trades once a day, at the net asset value calculated after markets close. An order placed mid-day is filled at that end-of-day price, whatever it turns out to be. There is no bid, no ask, no limit order: the price is not negotiated, it is calculated.

One mechanical consequence: with an ETF there is a bid-ask spread — an implicit transaction cost, separate from the fund's fees, whose workings are described in The liquidity of a security. With a mutual fund that spread does not exist; other charges may instead apply on purchase or redemption.

Fees: the MER on both sides, and the rest

Both structures charge a management expense ratio (MER) — expressed as an annual percentage of assets, deducted inside the fund, never billed separately. How it works and what it does over time are covered in The management expense ratio, and none of it changes from one wrapper to the other.

What differs is the fees around the MER:

• an ETF is bought through a broker: a brokerage commission may apply to each transaction, as it would for a stock, and the bid-ask spread is on top of that;
• a mutual fund may carry fees specific to its series — front-end or back-end charges, trailing commissions embedded in the MER depending on the series purchased. Two series of the same fund can show different MERs.

Neither structure is inherently cheaper than the other: fees depend on the fund, the series and how you transact. The comparison is made fund by fund, using the regulatory documents listed in the sources.

Minimums: an amount versus a unit

A mutual fund generally sets a minimum investment amount, and accepts fractional amounts: a deposit buys a number of units with decimals.

An ETF is bought in whole units, at the market price. The minimum is not set by the fund: it is the price of one unit. Some brokers allow fractional units; that is a feature of the broker, not of the product.

This difference has a concrete effect on regular contributions: a fixed amount is invested in full in a mutual fund, whereas the same amount usually leaves a cash remainder in the case of an ETF.

Transparency of holdings

An ETF generally publishes the composition of its basket daily. A mutual fund publishes its holdings at regulatory intervals, with a lag — the exact contents on a given day are not public that same day.

In both cases a summary regulatory document exists in a prescribed format: ETF Facts and Fund Facts. They present fees, risk and past performance using the same structure, which is what makes them comparable to one another.

What this changes for your tracking

Prices are not yet shown in the app; they will be at launch.

Everyfolio tracks listed securities: an ETF is entered like a stock, with its symbol, quantity and price — and its value updates with the market. A mutual fund is not exchange-listed; it has no continuous quote, so the app does not track it the same way. This is not a judgment about the product: it follows directly from the mechanism described above — one has a price at every instant, the other has one per day.