Funds or ETFs? The choice is yours.
Funds or ETFs? Both investment solutions have their appeal: Funds offer active management and expertise, while ETFs are characterised by low costs and flexibility. You decide which instrument best suits your objectives and risk profile. Discover the differences between funds and ETFs.
Differences between ETFs and funds
Should you invest passively to keep costs in check or aim for higher returns thanks to active management? Find out which strategy suits your goals! Learn about the most important differences between ETFs and funds at a glance in the following section.
What characterises a fund?
Investment funds pool the capital of many investors in order to invest broadly in investments such as equities, bonds or real estate. This allows them to achieve diversification even with small amounts, which can reduce risk. A fund is managed by professional fund managers with the aim of achieving the best possible return and outperforming the benchmark. This often leads to higher administrative fees.
- Funds are generally suitable for investors who want to focus on professional management and potentially higher returns.
What characterises an ETF?
ETFs (exchange-traded funds) are investment funds traded on exchanges, similar to equities. They aim to replicate the performance of a specific index. Like funds, ETFs offer the opportunity for diversification even with small amounts, as they bring together a large number of securities. They are generally cost-effective because they are usually passively managed and have lower administrative fees.
- ETFs are generally ideal for investors looking for a simple, cost-efficient and transparent way to invest in broad markets.
- Physical vs. synthetic: Physical ETFs actually acquire the assets they are intended to represent, such as equities. Synthetic ETFs mimic the performance of an index by entering into swaps with other parties rather than buying the assets directly.
Almost the same: difference between index funds and ETFs
Both index funds and ETFs seek to replicate a very specific index and provide easy access to different markets and sectors. The difference lies in tradeability.
- Index funds: Index funds track an index. This enables passive, often more cost-effective investing. Thanks to the broad diversification, the risk of the investment is generally reduced. Index funds are traded at the net asset value (NAV) once a day.
- ETFs: An ETF (exchange-trade fund) is an index fund that tracks the performance of known market indices and is traded on an exchange. They can usually be traded throughout the day. Like index funds, they can offer cost-effective diversification.
Three differences between funds and ETFs
- Management: Funds are typically actively managed, while ETFs passively replicate an index.
- Cost structure: The costs for funds are usually higher than for ETFs due to their active management.
- Tradability: Like equities, ETFs can generally be traded on the stock exchange all day long, while funds can only be traded at the net asset value (NAV) once a day.
