Bond Mutual Funds vs ETFs

Both bond mutual funds and bond ETFs can provide you with a solid form of investment. However, these investments have a few key differences. Here are a few things to consider about bond mutual funds and ETFs.

Active Management

One of the key differences between these two types of investments is the level of management. Mutual funds typically have a high level of active management. This means that the fund manager is going to actively pursue opportunities for investment. They are going to look over all of the different options that are available and continuously buy and sell bonds in order to better the fund. With ETFs, you are not going to get the same level of active management. Instead, you are going to get a much more passive approach. They are going to buy the underlying securities and hold onto them for the long term.

Expenses

Because of the level of management, you are also going to have a difference in expenses. Both the mutual fund and ETF are going to have some type of expenses associated with them. You will have to pay to cover the management and administration of each type of fund. However, since the mutual fund is going to utilize a more aggressive management style, you are going to have to pay them more in expenses. The passive management style of ETFs is going to provide you with a lower expense ratio. This means that if you are concerned about the amount of money that you have to pay out in expenses, the ETF is going to be the way to go.

Liquidity

Another key difference between these two types of investments is the level of liquidity. ETFs are going to be quite a bit more liquid than mutual funds. With an ETF, you can buy or sell shares anytime that the market is open. The term ETF stands for exchange traded fund, which indicates that you can trade anytime that the exchange is available. With mutual funds, it is not this simple. Each day, they are going to calculate the net asset value of the fund. This will tell them the value of each share in the fund that is available. This means that, as an investor, you have to wait until the end of the trading day to deal with them. If you put in an order for shares in the fund, you are going to have to wait until the end of the trading day to know how much you are paying for the shares. If you want to sell your existing shares, you are going to have to wait until the end of the trading day to know how much you are going to get out of them.

This can create an issue for investors if they need to sell their shares quickly. For example, if something happens during the day that is going to affect the value of the investments, you can quickly unload your shares of ETF, but you will have to wait until the end of the day with mutual funds. 

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