Mutual funds and exchange-traded funds (ETFs) look similar at first glance.
Both pool money from many investors. Both hold baskets of stocks, bonds, or other assets. Both are regulated investment products in the United States.
Yet they work differently in some important ways.
This article explains those differences in simple language.
It does not tell you which one to choose or how to invest. It is educational only.
What they have in common
The SEC’s Investor.gov describes both mutual funds and ETFs as pooled investment companies that hold a portfolio of securities managed by an SEC-registered investment adviser.
FINRA’s investor education materials make the same point: both types give investors a share in a professionally managed, diversified portfolio.
In short, they share three core traits:
- Pooled money from many investors
- Diversified holdings inside one vehicle
- Professional management following a stated objective
Where they differ is how they trade, how they price, how costs and taxes work, and how investors use them in practice.
Structure and regulation
A mutual fund is an SEC-registered open-end investment company that issues and redeems shares at net asset value (NAV).
An ETF is an exchange-traded investment product that must register with the SEC as an open-end investment company or a unit investment trust.
So, at the structural level:
- Both are regulated under the Investment Company Act of 1940.
- Both must provide disclosure documents such as prospectuses.
The big structural distinction is this: mutual funds transact directly with the fund company at NAV, while ETFs trade on an exchange at market prices.
How you buy and sell
Mutual funds
According to FINRA, mutual fund investors usually buy and redeem shares directly with the fund (or through a broker) at the fund’s NAV, calculated once per business day after the market closes.
Fidelity’s trading guide describes it the same way: when you place a mutual fund order, it executes at the next calculated NAV, not at a real-time price.
Key points:
- One price per day (end-of-day NAV)
- Trades go through the fund company, not on an exchange
- You do not see intraday price changes for the fund itself
ETFs
Investor.gov explains that ETF shares trade on stock exchanges throughout the day, like individual company shares.
Schwab’s comparison articles make the same distinction: ETF orders fill at market prices during the trading day, while mutual funds transact at end-of-day NAV.
In practice:
- ETF shares trade from one investor to another on an exchange
- Prices move all day based on supply and demand
- Investors can use standard stock order types (market, limit, etc.)
So, mutual funds feel more like “end-of-day” products. ETFs feel more like “live-priced” securities.
Pricing: NAV vs. market price
Both mutual funds and ETFs calculate a net asset value each day.
NAV is the value of the fund’s assets minus its liabilities, divided by the number of shares.
The difference lies in how investors interact with that value:
- With mutual funds, transactions occur at NAV at day’s end.
- With ETFs, investors trade at market prices, which can be slightly above or below NAV (a premium or discount).
Finra notes that both are quite liquid in normal conditions, but the pricing mechanism is not the same.
Minimum investments and trading units
Vanguard’s education center explains that many of its mutual funds have a flat dollar minimum, such as a few thousand dollars for an initial investment.
Schwab highlights that mutual funds can be purchased in dollar amounts or fractional shares, while ETFs usually trade in whole shares in the exchange market.
Typical pattern:
- Mutual funds
- Often have a stated minimum (for example, $1,000 or $3,000).
- Allow automatic investing plans and dollar-based contributions.
- ETFs
- Minimum is usually the price of one share, though some brokers support fractional ETF trading on their own platforms.
Vanguard, Schwab, Fidelity, and other major providers all stress that investors should look at each fund’s specific rules and minimums in the prospectus or online profile rather than assume a standard number.
Costs and fees
According to the SEC’s brochure on mutual funds and ETFs, both types charge annual fund operating expenses, known as the expense ratio, and may also have other fees.
Big providers and regulators highlight several cost layers:
- Expense ratio
- Covers portfolio management, administration, and other costs.
- Deducted from the fund’s assets, which reduces returns to investors.
- Sales charges or loads (mutual funds)
- FINRA notes that some mutual funds apply front-end or back-end sales charges and ongoing 12b-1 fees.
- Trading costs (ETFs)
- ETF investors may face brokerage commissions and bid-ask spreads, even when the expense ratio is low.
Schwab and Vanguard both emphasize that ETFs often carry lower expense ratios than comparable actively managed mutual funds, especially when they follow index strategies, but they also caution that this is not a rule for every case.
BlackRock’s iShares education pages make a similar point: ETFs tend to disclose their fees clearly and may cost less than many traditional mutual funds, but investors still need to check each fund’s fee table.
This article does not say which cost level is “good” or “bad.”
It only outlines the types of costs that exist in each structure.
Transparency and portfolio disclosure
Investor education materials from iShares state that ETFs typically disclose their holdings daily, while mutual funds usually report full holdings on a quarterly basis (with some additional summary updates in between).
Schwab echoes this contrast in its ETF vs. mutual fund guides, and FINRA notes that transparency is one of the features many investors associate with ETFs.
In practice:
- ETFs often show the current basket of securities very frequently.
- Mutual funds provide detailed holdings less often but still follow disclosure rules.
Both must provide prospectuses, fact sheets, and regular reports.
Those documents explain the strategy, risks, and costs in more depth.
Active vs. index approaches
According to Investor.gov, both mutual funds and ETFs can use active or index-tracking strategies.
Schwab and Fidelity point out some broad tendencies:
- Many mutual funds, especially older ones, use active management.
- Many ETFs use index strategies, though active ETFs now exist as well.
Vanguard often notes that it offers both index mutual funds and index ETFs that track the same benchmarks, which shows how close the two vehicles can be when they share a strategy.
The key idea: the vehicle (mutual fund or ETF) and the strategy (active or index) are two separate questions.
Where investors see them in practice
Investor.gov and FINRA both describe mutual funds and ETFs as common building blocks in:
- Workplace retirement plans such as 401(k)s
- Individual Retirement Accounts (IRAs)
- Taxable brokerage accounts
Large firms like Vanguard, Schwab, Fidelity, and BlackRock structure their product lines so that many broad market exposures exist in both mutual fund and ETF form.
On saveurs.xyz, you can also find beginner-friendly explanations of related ideas such as diversified portfolios, mutual funds, and ETFs themselves, all written for readers who are just starting to learn.
Conclusion
Mutual funds and ETFs share the same basic goal: they pool money from many investors into diversified portfolios managed under clear rules. SEC, FINRA, and major providers like Vanguard, Schwab, Fidelity, and BlackRock all describe them as regulated vehicles that offer professional management and broad market access.
Their main differences lie in how you trade them (end-of-day NAV versus intraday market price), how minimums and fees work, how taxes arise in taxable accounts, and how frequently they disclose holdings.
Seeing those contrasts side by side helps beginners understand that mutual funds and ETFs are not rivals in a contest, but two different wrappers around similar types of investments—tools that operate differently, even when they hold very similar portfolios.