What should I invest in - ETFs or Mutual Funds? Which will help me make more profits? What’s better for the longer term?

These questions might sound familiar to you. I’ve been here too! And after a lot of tedious reading, I decided to bring all the information under one simple structure.Let’s take a step back and understand what each is, how they work, and the key differences. Once I take you through these, you’ll be better equipped to make your choice between ETFs and mutual funds.

What Are ETFs?

ETFs, aka Exchange-Trade Funds, are vehicles or trackers that merely track the price of one asset or a basket of assets. When you invest in the ETF of an asset, the ETF provider owns the underlying asset, and you don’t own anything. The tracker or index will track the asset’s price fluctuation. Based on that, you will either make profits or incur losses.

ETFs can be traded on the gate.io exchange actively, and you can buy/sell these assets during the session.

What Are Mutual Funds?

Mutual Funds are relatively more complex since you give your money to the service provider that invests your money in an asset or a portfolio of assets. Here, you directly own the underlying assets, and it isn’t merely tracking the prices. You cannot trade Mutual Funds actively like stocks.

Difference Between ETFs And Mutual Funds

1.ETFs are more flexible since we can actively trade them like other stocks, but mutual funds are not. You need to request the service provider to buy/sell the funds. It is a unit of a few assets with a net value.

2.ETFs are mere trackers, so the asset management fees are relatively low. However, there is a commission for buying and selling assets because the ETF provider does it on your behalf.

3.The management fees are high with mutual funds since a fund manager will make investment decisions on your behalf. However, there is no commission to be paid for buying/selling assets.

4.ETFs do not have any minimum lock-in period, and you can buy/sell assets as you wish. However, there is a minimum lock-in period with mutual funds based on the kind of funds and schemes you’ve chosen.

These are the primary differences between ETFs and mutual funds. Now, here are some factors that you can consider while choosing between the two.

Factors To Consider While Choosing Between ETFs And Mutual Funds

1.If you’re looking for something short-term, then ETFs are a good choice since you can buy and sell as you wish. However, for long-term purposes, you can invest in mutual funds with schemes that support the strategy.

2.How much risk you want to take can also determine your choice. The choice is not limited to ETFs or mutual funds. You have to choose the kind of assets and portfolios too.

3.Your end-game with the investments also determines which one you should go for.

Thus, these are some of the key differences and factors that can guide you to choose between ETFs and mutual funds.

*This article only represents the views of observers and does not constitute any investment advice.