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Yahoo
15 hours ago
- Business
- Yahoo
Should I invest in ETFs or mutual funds? Here's how to choose.
Investors and retirement savers who want to own broad swaths of the stock and bond markets often face a choice: Do they want to buy time-honored mutual funds, or upstart exchange-traded funds? If you're wondering which is the better option, investors have more or less answered that question, voting with their feet. New investment dollars are now more likely to flow into exchange-traded funds, or ETFs, than mutual funds, said Kathy Kellert, head of index equity product at Vanguard. But each investment vehicle has its pros and cons. Here's a short primer. Mutual funds date to the 1920s, but they didn't really catch on with the general public until the 1980s, Investopedia reports. Simply put, a mutual fund pools money from multiple investors to purchase a collection of stocks, bonds or other assets. Exchange-traded funds debuted in 1993 but didn't take off until the new millennium. They resemble mutual funds but trade like stocks. Some financial experts think of ETFs as a new-and-improved version of the mutual fund. ETFs aren't necessarily better than mutual funds, but they are certainly hotter. Total ETF assets have risen from about $2 trillion in early 2015 to more than $10 trillion in early 2025, according to federal data. In the same period, mutual fund assets have risen from $13.5 trillion to about $21 trillion. 'ETFs are definitely the golden child of the investment world right now,' said Jonathan Swanburg, a certified financial planner in Houston. Swanburg is more likely to recommend ETFs to his clients. He is not alone. 'ETFs are better in a lot of ways,' said Stephen Kates, a financial analyst at Bankrate. Pros and cons of ETFs and mutual funds Here are a few ways ETFs might be considered superior to mutual funds: ETFs trade throughout the day, like stocks. You can buy or sell shares in real time. Mutual funds, by contrast, are priced only once a day, at the end of trading. That makes it harder to react to market fluctuations when you buy or sell. It is generally cheaper to invest in an ETF. With many mutual funds, a first-time investor has to 'put in a minimum amount: $1,000, $3,000,' said Robert Brokamp, a senior advisor at The Motley Fool. ETFs are mostly bought and sold by the share, and you can start with one share. ETFs are also considered more 'tax-efficient' than mutual funds. It's complicated: Suffice to say that mutual fund investors 'may see a slightly higher tax bill' because of the way the funds are managed, which can generate capital gains, according to Investopedia. The tax efficiency of ETFs matters less, though, if the shares sit in a tax-advantaged retirement account. And here are some potential advantages to mutual funds: A mutual fund is optimally designed for a retirement saver who wants to invest a set dollar amount every month, or every paycheck, as with a 401(k) workplace retirement plan. If you are splitting a $500 contribution across five mutual funds, '100% of that money goes where you want it,' Swanburg said. It's harder to do that with an ETF, just as it's harder to buy exactly $100 worth of stock shares. 'ETFs trade like stock, on an exchange,' Kellert said. 'Generally, you're buying whole shares.' Mutual funds rule workplace retirement plans Mutual funds remain dominant in employer retirement plans, Kellert said, although 401(k) plans increasingly offer ETF options. The ETF is designed for real-time trading, while workplace retirement plans are tailored for relatively hands-off, long-term investing. Mutual funds have a much longer track record than ETFs. An investor who owns shares of the Fidelity Contrafund or the Vanguard Wellington Fund owns a piece of mutual-fund history: Both are actively managed funds with decades of proven performance. 'There are some mutual funds out there that I have so much respect for that are actively managed,' said Monica Dwyer, a certified financial planner in West Chester, Ohio. An investor who's looking for 'a fund with an experienced manager who actively selects investments based on market conditions' will generally find 'more mutual fund choices than ETF choices,' said Sam Taube, lead investing writer at NerdWallet. Many of the most popular ETFs and mutual funds are index funds: They mirror the performance of the S&P 500 or some other group of stocks or bonds. But the ETF world has a reputation for risk. Many ETFs are 'leveraged,' aiming to magnify the returns on an index or individual stock. Leveraged ETFs can yield big rewards, and big losses. 'For people who do want to actively trade, there are so many interesting or unique ETFs out there that didn't exist a few years ago,' said Kates of Bankrate. 'Some of them are very aggressive in their strategy, some are extremely volatile, and some are downright dangerous.' Many mutual funds offer high risks and high rewards. Yet, comparatively speaking, the ETF landscape is the Wild West of pooled investment funds. 'Just because it's an ETF doesn't in any way mean it's safe,' Swanburg said. Mutual fund or ETF: Which is the right choice? Here, to summarize, are some reasons to choose an ETF over a mutual fund, or vice-versa. Reasons to consider an ETF: You buy and sell a lot. Real-time trading is possible with ETFs, but not with mutual funds. You're worried about capital gains tax. ETFs are considered more tax-efficient than mutual funds. You don't want to make a large initial investment. Mutual funds often require four-figure buy-ins. Reasons to consider a mutual fund: You make regular contributions. It's generally easier to invest set dollar amounts in a mutual fund account. You want to invest in a well-known, actively managed fund. Many managed mutual funds have long track records. You're a 401(k) retirement saver. It's generally harder to incorporate ETFs into a 401(k). This article originally appeared on USA TODAY: ETFs or mutual funds? Here's how to choose. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
3 days ago
- Business
- Forbes
What Is A Mutual Fund? How They Work And How To Invest For Beginners
Many investors achieve their investment goals using just mutual funds because of their breadth of ... More options, relatively low costs and ease of use. Mutual funds are an accessible investment vehicle which provides average or advanced investors with a wide range of exposure and diversification to a vast swathe of investment options from equities to commodities to bonds. Investors can delve deeper into specific sectors or sub-categories of funds in these categories, choose passive or active funds, and shop for ideal fee structures. In this guide, you'll gain an introduction to mutual funds including their advantages, risks, categories and how to buy your first mutual fund share. What Is A Mutual Fund? A mutual fund is an investment vehicle which pools money from investors and invests into securities like stocks and bonds to achieve the funds' objectives whether this is tracking an index or providing diversified exposure to a particular asset class. Mutual funds trade just once per day at the funds' net asset value (NAV) unlike stocks or ETFs which trade during market hours on an exchange. Mutual funds are managed by professional teams and can range from low expense ratio passive funds which track an index to actively managed funds who charge higher minimums and expense ratios as they try to beat a benchmark. How Do Mutual Funds Work? Mutual funds are managed by teams who manage the operations of the fund from choosing investments, rebalancing holdings and managing cash flow. As mentioned, when you buy or sell shares in a mutual fund they trade at the end-of-day NAV and aren't actively traded during the day like a stock or ETF. Index funds are a type of mutual fund which just passively tracks an index like the Nasdaq-100 while actively managed funds charge higher fees as they try to beat a benchmark. Types Of Mutual Funds To Know There are a number of types of mutual funds distinguished by the assets they invest in and the goal of the fund, like equity funds which invest in stocks, to ESG funds which invest in stocks based on a company's adherence to particular standards. Equity funds are mutual funds investing in stocks with the goal of appreciating capital. These funds are often distinguished by growth or value focus, by investing in particular sectors of the stock market, or investing in particularly-sized companies. Equity funds are ideal for investors focused on long-term portfolio growth as they're more volatile but usually deliver higher returns than fixed-income funds. Fixed-income funds pool investor money to buy bonds to deliver ensuing interest from these bonds to investors. These funds can invest in particular types of bonds like government or corporate bonds to provide concentrated exposure to a bond type while diversifying across many bonds or a mix of bond types to provide even greater diversification and reduce risk. Fixed-income funds are commonly invested in by investors who wish to earn more income or reduce volatility in their portfolio if they're heavily invested in riskier assets like stocks. Money market funds aim to deliver some yield for investors while maintaining a NAV of $1 by investing in Treasury bills or other short-term investments like high-grade commercial paper. These funds are often used in brokerage accounts as a short-term holding place which earns interest before investors invest in other assets. Target date funds are a useful mutual fund type for investors who wish to invest in a single fund for life which shifts from more growth and equity heavy to more conservative and fixed-income heavy as the investor inches to retirement age. These funds are commonly used by investors who don't wish to manage their own portfolio diversification, particularly in a 401(k) account. Commodity funds provide exposure to the price moves of specific commodities like gold, oil or a mix of commodities. These funds will invest directly in the commodity, buy commodity futures contracts or by simply owning stocks linked to the commodity. These investments can be useful to diversify a portfolio or hedge against inflation but they still bear risk like price drops for specific commodities like new discovery of oil increasing global supply, and thus dropping oil prices. ESG, or environmental, social and governance, funds are a popular mutual fund type with socially-conscious investors who wish for their investments to align with their values. These funds will research and evaluate companies for how they align with certain benchmarks like how sustainable they are, how diverse their boards are or how they treat workers. Benefits Of Investing In Mutual Funds There are five main benefits of investing in mutual funds from ease of diversification to fast liquidity in case you need to cash out of your position. A principal benefit of investing in mutual funds is the diversification that one or multiple mutual fund positions can provide. By purchasing a share you can own percentages in hundreds of stocks, helping you diversify and reduce risk in concentration. With ownership of multiple mutual funds dedicated to different asset types, sectors or categories, you can reduce volatility and ensure portfolio diversification. Another benefit that mutual funds provide is the professional management of mutual funds by investment teams all working to ensure risks are mitigated, investments are well researched and the right trades are executed. This is especially useful for investors who don't have the time or expertise to manage a portfolio of hundreds of stocks and assets themselves. In addition to diversification and professional management, mutual funds provide a high level of accessibility to the average investor. With as little as $100 in brokerage accounts and IRAs, investors can own shares of hundreds of stocks, and 401(k)s often waive these minimums, making it even easier to get started. Like many stocks, mutual funds are also highly liquid, allowing investors to sell shares by the end of the business day when the market closes. This daily liquidity makes it easy to close a position if you need to access cash, rebalance your portfolio or invest in a new opportunity in just a day. When you invest in mutual funds which pay dividends you'll also access the ability to reinvest dividends, which are paid out or other distributions, ensuring you can compound your investment. Many brokerage accounts will offer a Dividend Reinvestment Program (DRIP) which is an often free program where dividends are reinvested without fees, and fractionally if the dividend isn't enough for a full share. Risks Of Investing In Mutual Funds While mutual funds are generally considered less risky investments, there are a few risks you should bear in mind before determining if mutual funds in general or specific mutual funds are right for you. A primary risk of mutual funds, common with securities in general, is the risk of share prices falling based on the assets' lowered value. For example, equity mutual funds will fall when the stock market or a particular sector dips or a commodity fund will fall if that particular commodity's price falls based on some global event. Risk is inherent with most investments so knowing your risk tolerance and balancing your portfolio will help hedge against market risk. If you choose to invest in an actively-managed fund, know that your fund can outperform a benchmark but it can also underperform due to manager risk. Whether the fund manager loses key personnel or makes a mistake, this can affect the return of your fund. If your chosen mutual fund is focused on investing in an asset with lower trading volume than say, a major index, like small-cap stocks, the fund may experience lower liquidity in the event of a sell-off, resulting in a lower NAV from sales at unideal prices. While mutual funds are required to follow liquidity management plans, unexpected events can affect NAV negatively. Interest rate risk is most acutely felt with fixed-income funds when interest rates rise causing fixed payouts from the fixed-income fund to not be a worthwhile investment causing a sell-off. This risk can be mitigated by investing in a mix of bond or fixed-income funds by time horizon so you can ride out dips from interest rate increases. Costs And Fees To Understand The main cost of mutual funds are expense ratios which are a percentage of assets that fund managers will charge annually to pay for operating costs, typically under 0.20% for passive funds, but as much as over 1% for actively-managed funds. Two other fees you may run into are load fees which are fees charged when you make an initial investment in some mutual funds and redemption fees which are charged if you cash out a position in certain mutual funds. Finally, other fees may arise with some mutual funds like 12b-1 marketing fees, so it's always crucial to read a fund's prospectus to fully comprehend the true cost of a fund versus potential returns. How To Invest In A Mutual Fund Below are the five steps to get started investing in mutual funds from determining your investing intent to placing your order and monitoring your performance. Laying out your goals will help you determine the right mutual fund type for you. For example, knowing the goals you have in mind as well as knowing your risk tolerance, what your current portfolio mix is, and how long you're investing for will help you figure out whether you need to be more risk-averse with more invested in bond funds or more growth minded with equity funds. Choosing the right account to invest in your mutual fund will be tied to your investment goals. For example, if you're saving for a home, you should invest through a taxable brokerage account but if you're investing for retirement, you should invest in your 401(k) or IRA. If you're investing for a child's college savings, you should choose a 529 plan and if you're saving for future health costs, invest through your HSA. Next, research available funds in either the brokerage's research tools or a third-party tool like Yahoo Finance or Morningstar, including how the fund performs against benchmarks, what fees are charged and what the fund's portfolio is made up of. Read through the fund's prospectus to make sure it aligns with your investment objectives and see if there are any better mutual funds available. Enter the ticker symbol in your brokerage account trading window, select how much you want to invest, and determine whether you want to reinvest dividends or not. Confirm the settlement rules and check that all fees or penalties are as you expected before you submit the trade. Finally, monitor the performance of your mutual fund by reviewing how it performs quarterly, gauging how it performs against the benchmark, and tracking if there's been any drastic changes in fees. Be confident in your research but assess the performance over the quarters to track any price changes and why they occurred. Bottom Line As you've learned, mutual funds are an excellent investment vehicle regardless of your experience, level of capital or asset preference. Many investors have and will achieve their investment goals using just mutual funds because of their breadth of options, relatively low costs and ease of use. With the information in this guide, you're better armed to achieve your investment goals too, whether you choose to get started with passive or actively-managed mutual funds or another investment vehicle of your choosing. Frequently Asked Questions (FAQs) Are Mutual Funds Safe? All investments bear the risk of loss of some or all of your principal investment, but mutual funds are generally considered a safer investment as they offer diversification and are regulated by the SEC. What Is The Minimum To Invest In A Mutual Fund? The minimum to invest in mutual funds can range depending on the mutual fund and whether your brokerage account provides fractional investment in mutual funds. If you can fractionally invest, you can pay just $1 to invest, while mutual funds themselves can allow for a minimum investment of up to $100 if they offer low minimums, or $500 to $10,000 if they have a high minimum. Can I Lose Money In A Mutual Fund? Yes, you can lose money in a mutual fund as the net asset value (NAV) of these funds can rise and fall depending on the market. Even a bond mutual fund can lose value if interest rates rise, causing a fall in bond prices and the corresponding NAV of the fund. Are Index Funds Different From Mutual Funds? Index funds are a type of mutual fund which tracks a particular index like the S&P 500 index. Index funds often charge lower expense ratios and are useful for passive, diversified portfolio construction.
Reuters
5 days ago
- Business
- Reuters
India markets regulator proposes several changes to mutual fund rules
July 18 (Reuters) - India's markets regulator on Friday proposed a series of changes to mutual fund scheme rules, including allowing asset managers to offer both value and contra funds under certain conditions. The Securities and Exchange Board of India, in a consultation paper published on its website, suggested permitting mutual funds to offer both value and contra funds provided the overlap in their investment portfolios does not exceed 50%. Value funds typically invest in undervalued companies, while contra funds invest against prevailing market trends. Under current regulations, asset managers are allowed to launch only one of these two. India's mutual fund industry hit a new record in June, with net assets under management climbing to nearly 75 trillion rupees ($870.95 billion). SEBI on Friday also sought feedback on whether mutual funds should invest the residual portion of their equity scheme funds in a diversified mix of assets such as debt, gold, silver and real estate investment trusts. Equity schemes must invest a minimum 65% of their funds in equity-related instruments, and the rest can be parked in debt or money market instruments. The regulator sought feedback on whether mutual funds should be permitted to invest the residual portion of debt scheme funds in real estate investment trusts and infrastructure investment trusts, except for schemes with short durations. SEBI has sought comments by August 8. ($1 = 86.1130 Indian rupees)
Entrepreneur
6 days ago
- Business
- Entrepreneur
JioBlackRock Gets Sebi Nod for Four Mutual Fund Schemes
The approved offerings include the JioBlackRock Nifty 8–13 Yr G-Sec Index Fund, Nifty Smallcap 250 Index Fund, Nifty Next 50 Index Fund, and Nifty Midcap 150 Index Fund. Among these, three are equity-based index funds, while one is focused on government debt securities. You're reading Entrepreneur India, an international franchise of Entrepreneur Media. JioBlackRock Asset Management, the joint venture between Jio Financial Services and global investment firm BlackRock, has received regulatory approval from the Securities and Exchange Board of India to launch four mutual fund schemes. The approved offerings include the JioBlackRock Nifty 8–13 Yr G-Sec Index Fund, Nifty Smallcap 250 Index Fund, Nifty Next 50 Index Fund, and Nifty Midcap 150 Index Fund. Among these, three are equity-based index funds, while one is focused on government debt securities. The company aims to tap into India's growing investor base with a digital-first approach that emphasises simplicity in fund offerings. This strategy aligns with models used by fintech firms like Zerodha, Groww, and Navi. With strong financial backing and access to a large user base, JioBlackRock is expected to bring increased competition to the market. Nithin Kamath, founder of Zerodha, responded positively to the entry of JioBlackRock, suggesting it could help broaden India's investor base. He also reiterated Zerodha's commitment to long-term profitability and customer-focused services, noting that financial strength alone does not create enduring advantages in stockbroking. Earlier this month, JioBlackRock completed its first new fund offer, raising INR 17,800 crore across three schemes. The offer attracted over 90 institutional investors and more than 67,000 retail investors in just three days. In addition to mutual funds, Jio Financial is expanding into wealth management and stockbroking. It recently established Jio BlackRock Broking Pvt Ltd, which is awaiting regulatory clearance to begin operations.
Yahoo
6 days ago
- Business
- Yahoo
US Funds Gather $50B of New Assets in June: Morningstar
$50 billion poured into U.S. open-end mutual funds and exchange-traded funds (ETFs) in June—even as U.S. equity funds posted their worst outflows in more than three years, according to a new report from Morningstar. Investors continue to gravitate towards active ETFs despite a modest slowdown, while bond funds dominated inflows as equity funds experienced losses. Active ETFs Stand Out Despite Slowdown in Growth Active ETF flows cooled in the second quarter of 2025, with the 8.8% organic growth rate marking the lowest since the third quarter of 2023. However, it's not surprising that there would be some slower growth rates given the ETF market's large total asset base, according to the report. The slowdown seen in June may just be a 'temporary pause in the data,' Drew Carter, an analyst of equity strategies at Morningstar and an author of the report, told These funds still took in $29.4 billion in June, reaching $200 billion in inflows for the first half of the year. 'We don't really see any underlying reasons that might cause us to expect a more durable decline in flows to these vehicles,' Carter said. 'When I speak to active managers, I would say this is a topic that nearly all of them have explored, and many are moving to creating their first active ETF or adding to their existing lineup to meet client demand.' Investors Turn Away From Stocks Stock market benchmarks like the S&P 500 and Nasdaq Composite may be hitting record highs, but that doesn't mean investors are going all in on equity funds. In fact, U.S. stock funds lost nearly $36 billion in June, suffering their worst monthly outflow in more than three years. Bond funds benefited from investors looking to take a bit of risk off the table. Taxable bond funds picked up $48.8 billion in June, with intermediate core bond funds marking their largest monthly inflow—$19.7 billion—since June 2021. And while U.S. equity funds suffered, international equity funds brought in more than $15 billion in June, 'building on May's momentum and showing continued demand for global diversification,' per the report. IBIT Dominates Digital Asset Flows Investors also remain interested in digital assets, which made up 60% of assets in the alternatives space in June. Much of that growth can be attributed to one fund: the iShares Bitcoin Trust ETF (IBIT), which accounted for 86% of total inflows for digital asset funds in the first half of the year. "There's a long distance between that one and a lot of the other ones that are mostly Bitcoin ETFs, but we did see some decent flows into some Ethereum ETFs,' Carter said, specifically calling out the iShares Ethereum Trust (ETHA). 'I think those trends are just based on the relative popularity of Bitcoin to Ethereum.'Permalink | © Copyright 2025 All rights reserved Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
