Understanding Mutual Funds and ETFs

Jul 11, 2024

Lecture Notes: Understanding Mutual Funds and ETFs

Presenter

  • Name: Soil Ahmed
  • Website: caa.com

Overview

  • Topic: Difference between Mutual Funds and Exchange Traded Funds (ETFs)

Mutual Funds

Definition

  • Investment vehicle pooling capital from a group of individuals
  • Managed by a fund manager

How It Works

  • Individual investors pool their money together
  • Fund manager invests the pooled capital
  • Investors do not know specific investments until end-of-quarter summaries/statements

Key Points

  • Managed at the manager's discretion
  • Investors receive quarterly summaries
  • Cannot be bought or sold during the day, only at end of day

Exchange Traded Funds (ETFs)

Definition

  • Similar to mutual funds but track indices (commodities, assets)
  • Trade on stock exchanges

How It Works

  • Investors can buy/sell like normal shares throughout the day
  • Usually track a specific index or basket of assets
  • Profit is directly related to the underlying asset tracked by the ETF

Key Points

  • Transparent: Investors know the underlying investments
  • Can be bought/sold during market hours
  • Typically lower management fees compared to mutual funds

Comparison

  • Mutual Funds: Managed by a fund manager, end-of-day trading, quarterly statements
  • ETFs: Track indices, intra-day trading, transparent investments, lower fees