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ETFs vs Mutual Funds: What’s the Difference?
When building a long-term portfolio, investors often compare Exchange Traded Funds (ETFs) vs. mutual funds. Though both offer diversification and are professionally managed, they differ in how they function, how they're priced, and who they suit. This guide will help you decide which investment type works best for your financial goals.
What are Mutual Funds? (MFs)
Mutual funds are a way to invest your money along with other people in a mix of assets like stocks or bonds. A professional fund manager handles the investing, so you don’t have to worry about choosing where your money goes. You buy units of the fund, and any profits—like dividends or interest—are shared based on how much you’ve invested.
Mutual fund investments are a simple, low-risk way to grow your money over time, especially if you’re looking for a hands-off approach. Plus, with different types of mutual funds available, there’s usually something to match your financial goals and risk level.
With DBS Treasures, you can invest in mutual funds easily through our digital banking platform, digibank by DBS. As an account holder, you get access to over 260 approved mutual fund schemes from 21 leading AMCs (Asset Management Companies) with real- time information and details on each fund.
What are Exchange-Traded Funds (ETFs)?
To make informed investment decisions, it's important to understand what Exchange Traded Funds mean. ETFs are investment instruments that pool together a collection of assets such as stocks, bonds, or commodities into a single fund. These funds are traded on stock exchanges, allowing investors to buy units just like individual shares. This structure is ideal for those who want to focus their investments on a specific commodity, strategy, or index while benefiting from diversification and liquidity.
What ETFs and Mutual Funds Have in Common
- Both offer diversified portfolios, reducing the risk of investing in individual securities.
- They are professionally managed by experts who track market trends and adjust the portfolio as needed.
- These investment options help lower overall portfolio risk, especially for long-term investors.
- You can start with a modest investment and gradually build your portfolio using a systematic approach.
To create a well-rounded investment plan, consider adding debt funds and fixed deposits alongside ETFs or mutual funds.
Key Differences Between ETFs and Mutual Funds
Investors looking to build a well-balanced investment portfolio, should know the key differences between exchange traded funds vs mutual funds. Here’s a side-by-side comparison to break it down further:
|
Feature |
ETF (Exchange Traded Fund) |
Mutual Fund |
|
How can I invest in them? |
Intraday (real-time trading) |
End-of-day NAV |
|
What are the costs? |
Usually, lower |
Generally higher |
|
What’s the Minimum Investment required? |
Minimum (1 share) |
May have a set minimum |
|
Are there tax advantages? |
More tax-efficient |
Less tax-efficient |
|
Who manages the portfolio? |
Passively managed, with daily portfolio disclosure to investors. |
Actively managed by fund managers, with monthly or quarterly portfolio disclosure to investors. |
|
Best Suited for |
Active investors, cost-conscious |
SIP investors, long-term holders |
Which Option Fits Your Investment Style
ETFs work well if you prefer active investing, want lower costs, and value intraday trading flexibility. They're also more tax-efficient, making them ideal for cost-conscious investors.
Mutual funds, on the other hand, suit those who prefer a simpler, long-term approach. With SIPs and professional fund management, they’re great for building wealth without the need to monitor markets daily.
You can also combine both to balance flexibility with stability. Adding options like debt funds and fixed deposits can further strengthen your overall investment strategy.
With a DBS Treasures premium savings account, you get a dedicated team of wealth experts to help you guide investments, insurance, and mortgage, along with forex specialists to simplify your personal finance.
Also Read:- Thematic Mutual Funds
Conclusion
Your choice depends on your financial goals, investment style, and risk appetite. Both exchange traded funds and mutual funds offer accessible entry points and long-term growth potential. While exchange traded investments like an ETF fund provide flexibility, mutual funds bring disciplined diversification.
With DBS Treasures, emerging investors and wealth builders can access curated solutions and wealth management services to make informed choices.
Disclaimer: This blog provides general information and is not financial advice; consult a financial advisor for personalized guidance.
