ETF vs Mutual Fund for Beginners: What Retail Investors Should Know Before Choosing
Introduction
You’ve just opened your first brokerage account. The interface looks slick, the deposit’s confirmed, and now it’s time to invest – but then it hits you: ETF or mutual fund? What’s the actual difference, and does it even matter?
In this beginner-friendly guide, we break down how ETFs and mutual funds really work, why they’re structured differently, and which one might make more sense for you – especially if you’re just starting your investing journey.
The information provided on this page and throughout the website is for general information purposes only and does not constitute financial advice. It is important that you conduct your own research and consider your own personal circumstances before making any investment decisions.
With low-cost, passive investing continuing to gain momentum in 2025, understanding these two vehicles is more than just good homework – it’s a smart step toward building a portfolio that fits your goals, risk tolerance, and lifestyle.
What is an ETF?
An ETF, or exchange-traded fund, is a type of investment fund that holds a basket of assets — like stocks, bonds, or commodities — and trades on the stock exchange just like a regular stock.
You can buy or sell ETFs throughout the trading day, and their prices fluctuate in real time based on supply and demand, unlike mutual funds, which only settle once per day.
🔍 Think of an ETF like this...
Imagine a shopping cart full of stocks. Instead of picking out each one, you just grab the whole cart. That’s your ETF – a one-click investment that gives you exposure to multiple assets instantly.
📌 Key Features of ETFs:
- Traded on exchanges like a stock (real-time pricing)
- Low fees (many are passively managed and track an index)
- Diversified exposure in a single purchase
- Tax-efficient due to how shares are structured and traded
ETFs have exploded in popularity recently — especially among beginner and DIY investors — because they’re simple, flexible, and low-cost. In 2025, ETFs remain a go-to option for those looking to build wealth over time without constantly monitoring the market.
What Is a Mutual Fund?
A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to buy a portfolio of assets, like stocks, bonds, or a mix of both.
Unlike ETFs, mutual funds are not traded throughout the day. Instead, they are priced and bought/sold once per day, based on their Net Asset Value (NAV), which is calculated after markets close.
💼 In simple terms
A mutual fund is like joining a group trip. You all pool your money, and a fund manager decides where to go (what to buy). You can’t change direction mid-ride, but ideally, the destination (returns) is worth it.
📌 Key Features of Mutual Funds
- Traded only once per day (end-of-day NAV pricing)
- Often actively managed (a fund manager picks investments)
- May have higher fees than ETFs
- Can have minimum investment amounts
Mutual funds are still popular for long-term, hands-off investing, especially in retirement plans, but with fees in focus and passive investing on the rise, many investors are rethinking how mutual funds fit into their strategy in 2025.
ETF vs Mutual Fund — Key Differences at a Glance
| Feature 🔍 | ETF 🧩 | Mutual Fund 💰 |
| Trading | Throughout the day at market price | Once per day after market close (NAV) |
| Fees | Low (especially passive ETFs) | Higher, especially for actively managed funds |
| Management Style | Typically passive (index-tracking) | Often actively managed |
| Tax Efficiency | More tax-efficient (in-kind redemptions) | Less efficient - capital gains often passed to investors |
| Minimum Investment | Usually none (can buy a single share) | Often $500–$3,000+ to start |
| Liquidity | High - buy/sell during market hours | Low - only redeem at day’s end NAV |
✅ Summary
ETFs offer real-time trading, low costs, and flexibility
Great for DIY investors and those building modern, passive portfolios.
Mutual funds offer professional oversight
But may come with higher costs and less flexibility.
Which One Is Better for Beginners?
There’s no one-size-fits-all answer, but if you’re just starting out, a few key factors can help you decide whether an ETF or a mutual fund is a better fit for your investing style.
🧑💻 Go with an ETF if you want...
Low fees and passive exposure to the market
The ability to buy or sell at any time during the trading day
No minimum investment - just start with the price of one share
A “set-it-and-forget-it” experience with index-tracking funds
ETFs are ideal for self-directed beginners who are comfortable using an online broker and want to build a low-cost, diversified portfolio gradually.
🧓 Consider a mutual fund if you prefer...
Someone else managing your investments
A more traditional, hands-off approach
Investing through a retirement plan or SIPP
You’re okay with higher fees in exchange for active management
Mutual funds can be helpful for investors who value professional oversight and don’t plan to trade or rebalance frequently.
Whether you’re saving for retirement, growing an ISA, or just getting started with investing, dollar-cost averaging offers a simple, steady, and stress-free way to stay in the game, even when the markets get bumpy.
🧠 A Simple Rule of Thumb
If you’re comfortable using an app or brokerage platform and want control over when and what you buy, start with an ETF. A mutual fund may suit you better if you prefer to “set it and forget it” with a trusted provider and aren’t fee-sensitive.
✅ In Short
Both ETFs and mutual funds can help you build long-term wealth. The right one for you depends on how involved you want to be, what you’re willing to pay in fees, and what tools or accounts you’re using.
Check out our reviewed investing platforms!
The information provided on this page and throughout the website is for general information purposes only and does not constitute financial advice. It is important that you conduct your own research and consider your own personal circumstances before making any investment decisions.
Conclusion
If you’re a retail investor just starting out, the ETF vs mutual fund decision isn’t about picking a “winner” — it’s about choosing what fits your investing style.
Both can offer broad diversification and long-term growth, but they serve slightly different types of investors:
- ETFs give you flexibility, low fees, and hands-on control – great for building a modern, DIY portfolio.
- Mutual funds offer structure and guidance – ideal if you want a managed approach with less day-to-day involvement.
In 2025, with more investing apps, lower-cost products, and more awareness of fees than ever, the good news is this: you’re not locked into one path. You can combine ETFs and mutual funds, revisit your approach as you grow, and tailor your portfolio over time.
Ready to put this into action? Check out our guide to Choosing Your First ETF or explore our Broker Reviews page to find a platform that matches your investing goals.
