There are lots of investment instruments we can avail in the market. A lot of them we can avail easily online and requires little knowledge to participate. However, it is strongly recommended to study or learn first what you are investing to limit the risks. After all, investing is risky and might result to fund losses.
Two of the common financial instruments we can avail are the mutual funds and ETF. Let’s differentiate the two and know which one suits your needs.
MUTUAL FUNDS VS ETF
Mutual fund is a type of investment where money from investors are pooled together and managed by a fund manager. In return, the fund manager invests these funds in various securities like bonds, equities, money market instruments and other assets. In terms of risk, it’s the manager who manages the fund and definitely good at what they are doing. It’s also diversified as the funds are not invested in a single company or instruments. In terms of return, it varies on which funds are invested. You can buy mutual funds from the fund companies directly. Insurance companies also offers them. Unlike stocks, you cannot trade the funds actively. You buy and sell mutual funds price, base on the last closing day price of the funds. Once you purchased the fund, you will now have a share of that fund. Daily, share price of that fund are reflected on the fund sites where you purchased your funds. This price is called net asset value per share (navps).
On the other hand, ETF is same as a mutual fund. The only difference is that, this ETF funds can be traded like stocks in the stock market. This is more an active type of investment compare to the mutual funds. Unlike mutual funds that you can buy via fund managers of mutual fund companies, you can buy ETF directly from your online stocks account. As long as that market has ETF to offer. Not all stock market have that option. For example, in Philippines, we only have one ETF available in the PSE. Compare to more mature market like US market, they have several ETF’s to choose from.