Economics Mutual Funds Questions
The main difference between a mutual fund and an exchange-traded fund (ETF) lies in their structure and how they are traded.
A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. It is managed by a professional fund manager who makes investment decisions on behalf of the investors. Mutual funds are bought and sold at the end of the trading day at the net asset value (NAV) price, which is calculated based on the total value of the fund's assets divided by the number of shares outstanding.
On the other hand, an exchange-traded fund (ETF) is also a type of investment fund that holds a diversified portfolio of securities. However, unlike mutual funds, ETFs are traded on stock exchanges throughout the trading day, similar to individual stocks. This means that ETFs can be bought and sold at market prices that fluctuate throughout the day, rather than at the end of the day at the NAV price. ETFs are also passively managed, meaning they aim to replicate the performance of a specific index or sector, rather than being actively managed by a fund manager.
In summary, the key differences between mutual funds and ETFs are their trading structure (mutual funds are bought/sold at NAV price at the end of the day, while ETFs are traded on stock exchanges throughout the day) and their management style (mutual funds are actively managed, while ETFs are passively managed).