ETFs are considered close cousins of Mutual Funds. Both are set up as pooled investment vehicles with a defined investment objective. Both are overseen by fund managers, and both are issued by Asset Management Companies (AMCs).
But ETFs are not Mutual Funds.
In this article, we will summarize key differences (and similarities) between Mutual Funds and ETFs. We will create a detailed table for easy understanding and comparison.
As we can see, both investment options have multiple differences. ETF as an investment option offers more flexibility to investors. As per the AMFI report, currently, almost 90% of ETFs are owned by institutional investors. With the adoption of ETFs by retail investors, retail participation is going to increase in the future.
Even though SIP is a widely accepted option in mutual funds, SIPs in ETFs are not that popular. But recently many brokers have started allowing users to set up SIPs in different ETFs. As ETFs are more flexible compared to normal MFs, this facility will be very useful for retail investors.
No, you can not buy fractional units of ETFs. You have to buy at least one unit of ETF. You can buy fractional units of mutual funds but ETFs don’t have this facility.