ETFs vs Mutual Funds

In 2025, Mutual Funds and ETFs remain two of the most trusted ways to invest and build wealth over time. But the right choice comes down to what fits you best — your comfort with risk, your financial goals, and how hands-on you want to be with your investments.

In this article, we’ll explain the pros and cons of ETFs vs Mutual Funds in easy to understand language, so that you can make smart choices with your hard-earned money. 

What is a Mutual Fund?

A mutual fund is like a pool of money where you and a group of other people put your money together. A professional guy called a fund manager uses that money to buy things like stocks, bonds, or other investments to help your money grow over time.

Key Points: 

• You invest your money with a group of other people.
• Run by a professional fund manager, where they decide how to invest in things like stocks, bonds, and other assets. 
• You can buy or sell it only once a day at Net Asset Value (NAV) price, which is calculated at the end of the day when the market is closing.  
• It comes with a management fee, because the fund manager is doing the job on your behalf. 
• It usually requires a minimum investment amount. 

What is an ETF?

Exchange Traded Fund (ETF), is also a group of investments like stocks, bonds, and other assets.  You can buy or sell or buy the stocks anytime when the market is open and to do so, you have full control. 

Key Points:

• It is also a group of investments 
• It doesn’t need a fund manager, you have control over when to buy or sell the assets during market hours.
• You can buy or sell it any time when the market is open, because ETFs trade on the stock exchange just like regular stocks. 
• You have more control with ETFs because you decide when to buy or sell. You don’t have to pay the fund manager to do the job on your behalf. 
• Usually have lower fees and you don’t need a lot of money to start investing. 

ETFs vs Mutual Funds: Easy Comparison for 2025 

Here are some basic pros and cons of mutual funds and ETFs in simple words

Fees

• Mutual Funds: Usually cost more because you pay some fee to the professional called fund manager

• ETFs: They cost less as compared to mutual funds, because you don’t need any management. 

Tip for 2025:

If saving money on management fees is important to you, then ETFs are super affordable for you.

Buying and Selling

• Mutual Funds: You can buy or sell it only once a day at NAV price when the market is closing.

• ETFs: Just like a regular market, you can buy or sell anytime you want, when the market is open for trading. 

Tip for 2025:

ETFs give you more control over your trading, because you can buy or sell it anytime during market hours.

Who Picks the Investments 

• Mutual Funds: A professional fund manager usually picks the investment for you or the group of people. 

• ETFs: Most ETFs just follow a like called Index (like the S&P 500), so one is managing your investment. You have all the control. 

Tip for 2025:

Nowadays, more ETFs are also managed by professionals too. So you can get the flexibility to trade anytime and smart investment options made by experts. 

Taxes

• Mutual Funds: Because the fund manager sells or buys the assets for you, you might owe taxes even if you didn’t sell anything. 

• ETFs: These are more tax-friendly, because you tax only when you have to sell the assets. 

 

Tip for 2025:

ETFs can help you save money on taxes, especially if you’re investing with your regular income i.e., non-retirement money. 

Minimum Amount to Start

• Mutual Funds: You may need around $500 or more to start investing in assets. 

• ETFs: You can start investing in assets with just a few dollars, because you can buy just a small share if it, not the whole thing. 

Tip for 2025:

If you’re new to investments, then ETFs are super easy to start with for beginners. 

Reinvesting Dividends

• Mutual Funds: You don’t need to do anything, because it automatically invests your earnings and usually reinvesting is free.

• ETFs: It depends on your broker, if it automatically invests your earnings or not. You may need to set it up in your brokerage account. 

Tip for 2025:

Both are good according to your needs but mutual funds are more convenient, because it is basically an automated process. 

Can You Use Both? 

Yes, you can definitely consider using both mutual funds and ETFs at the same time. Because mutual funds are helpful when you want to invest regularly and most important it allows you to invest automatically. 

And ETFs are helpful when you want more control over your investment, you can start with less amount, and can trade anytime during market hours with lower fees. 

Hence, Mutual Funds are mainly used for long term goals, like for your retirement plans and ETFs are mainly used for short to medium term goals like, saving for a car, building an emergency fund etc., 

Conclusion

Thanks to mobile apps like, Fidelity, Vanguard, Groww, Zerondha and many others for making the investment much easier for beginners. 

Before investing, always think about what matters most to you. Know your goals, like saving for retirement, a house, or your child’s education and understand how much risk you’re comfortable taking. This will help you choose the right investment that fits your needs. 

Know someone who needs investment tips? Share it with them! And drop your thoughts in the comment section. We’d love to hear from you and keep the conversation going! 

Funds Related FAQs

What is the key difference between mutual funds and ETFs?

Mutual funds are bought or sold only once a day when the market is closing at the end of the day, while ETFs can be bought and sold anytime during market open hours, like regular stocks. 

Which is better for beginners in 2025?

ETFs are good for low-cost and flexible investing, because you have full control over investment. Mutual funds are great, if you want to invest money every month without much effort, because it is managed by a fund manager. 

Which one has lower fees? ETFs or Mutual Funds?

ETFs usually have lower fees than mutual funds, because they are not managed by a fund manager. 

Can I invest in both mutual funds and ETFs?

Yes, many people use both to balance long-term as mutual funds and short-term investment as ETFs for more flexibility. 

Do I need a demat account to invest?

Yes, for ETFs you need a demat account, because it holds the units in electronic form. For mutual funds, you can invest without the dreamt account through apps or websites.