Skip to main content
U.S. flag

An official website of the United States government

Dot gov

The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.


The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Investor Bulletin: Characteristics of Mutual Funds and Exchange-Traded Funds (ETFs)

The Office of Investor Education and Advocacy is issuing this Investor Bulletin to educate investors about mutual funds and ETFs.

This Investor Bulletin discusses only ETFs that are registered as open-end investment companies or unit investment trusts under the Investment Company Act of 1940 (the “1940 Act”). It does not address other types of exchange-traded products that are not registered under the 1940 Act, such as exchange traded commodity funds or exchange-traded notes.

Mutual funds and ETFs are both popular options to help investors save for retirement and other financial goals. Mutual funds and ETFs have many similarities, but they also have some important differences that may make one product or the other preferable for a particular investor. 

Mutual funds and ETFs share some common features, including:

  • SEC-registered investment companies.
  • Offer investors a way to pool their money in a professionally-managed fund that invests in stocks, bonds, or other assets.
  • Can help investors achieve diversification of their investments.

Mutual funds and ETFs also differ in some important ways, including:

  • How they are bought and sold
    • Mutual funds - Investors buy mutual fund shares through the fund itself, or through a financial intermediary (like a broker). Shares are “redeemable,” meaning that investors can sell shares back to the fund.
    • ETFs - Retail investors can buy and sell ETF shares only in market transactions (i.e., on a national stock exchange). That is, unlike mutual funds, ETFs do not sell shares directly to, or redeem their shares directly from, retail investors. 

What this means for you: The way that you buy and sell shares will be different depending on whether you invest in a mutual fund or ETF. While it may be possible to hold mutual fund shares directly with the fund, you will need a brokerage account to buy, sell and hold ETF shares. A broker may be able to help you buy and sell both types of funds.

  • How they are priced
    • Mutual funds - Investors buy or sell mutual fund shares at the net asset value (NAV) per share, minus any applicable fees and charges. NAV is calculated at the end of each trading day.
    • ETFs - Retail investors buy and sell ETF shares at market prices, minus any applicable fees and charges. An ETF’s market price may be higher or lower than the ETF’s NAV per share (known as buying or selling at a premium or a discount). An ETF’s market price also fluctuates during the trading day. While an ETF’s market price generally stays close to the ETF’s end-of-day NAV, it may vary significantly.

What this means for you: While you can submit a purchase or sale order for mutual fund shares at any point during the trading day, you will not know the exact price per share that you will pay or receive until the end of the trading day. You can buy and sell ETF shares on a national stock exchange at the prevailing market price throughout the trading day.

  • Certain fees and expenses, for example:
    • Mutual funds - Fees may be charged directly to mutual fund investors in connection with transactions such as buying, selling, or exchanging shares, or on a periodic basis with respect to account fees.
    • ETFs - ETFs generally do not charge fees directly to investors in connection with purchase or sales of ETF shares, but there may be other types of transaction fees and costs, such as commissions paid to a broker in connection with each purchase or sale of ETF shares.

What this means for you: Both mutual funds and ETFs charge management fees and bear other expenses associated with their operation. You pay these indirect fees and expenses that are deducted from fund assets, but you may also pay some direct fees and expenses in different ways depending on which fund type you choose. All fees and expenses reduce the return on your investment.  It is always important to consider the total fees and expenses you will be charged in connection with any investment.

If you’re not sure whether a mutual fund or ETF is best for you, consider consulting your financial professional. also has a variety of more detailed materials that can help you understand these products better.

Additional Resources

Mutual Funds

Exchange-Traded Funds (ETFs)

Mutual Funds and ETFs: A Guide for Investors

Investor Bulletin:  Mutual Fund Conversion to Exchange-Traded Fund (ETF)

This bulletin represents the views of the staff of the Office of Investor Education and Advocacy.  It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”).  The Commission has neither approved nor disapproved its content.  This bulletin, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.
Return to Top