5 Things Every Investor Should Know
A refresher on the fundamentals of investing.
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Difference Between ETFs and Mutual Funds, Index Funds, Money Market Mutual Funds
August 3, 2025
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When it comes to investing, you have many options to consider given the variety of investment products available in the market. And some products may sound similar to one another, making it difficult—even for seasoned investors—to understand their key differences.
You don’t have to look far for an example of this. Consider: exchanged-traded funds (ETFs), mutual funds, index funds, and money market mutual funds.
Ahead, we’ll provide a general overview of these investment funds, so that you can decide which option may be a good fit for your investment style and goals.
ETFs vs. mutual funds
Let’s start with the basics to make sure you have a general understanding of how these investments work.
What are ETFs?
ETFs have become popular over the years because they can help investors build a diversified portfolio at a relatively low cost. As you can probably tell from the name itself, ETFs are a type of investment fund that can be traded on an exchange, like stocks. A single ETF can hold a large collection of assets, such as bonds (bond ETF), stocks (stock ETF), and commodities (commodity ETF).
For example, when you invest in a stock ETF, you’re not investing in just a single stock but rather, a number of different stocks all at once.
ETFs can be structured in many different ways. They can even be built to track certain indices, such as the S&P 500.
Because of their range of assets, ETFs have a certain degree of diversification already built in. This makes them a potential option for investors looking to diversify their investments. (But remember: Diversification doesn’t guarantee a profit nor can it protect against loss.)
What are mutual funds?
Like ETFs, mutual funds allow you and other investors to pool your money together and invest in a collection of stocks, bonds, and other assets. This collection is often referred to as the fund’s “portfolio.” When you invest in a mutual fund, you’re essentially buying a share (or shares) of the fund. And when the fund or portfolio generates income, you get a portion of that.
Because you’re pooling your money with other people, mutual funds can give the average investor a cost-effective way to invest in a professionally managed fund.
Unlike other popular investments (like stocks and ETFs), mutual funds are not traded on an exchange. Instead, you buy shares directly through the mutual fund company (or a broker for the fund).
Shares are bought and sold once per day when the market closes. And the share prices are based on the fund’s net asset value, which is calculated at the end of each trading day.
To learn more about mutual funds, you can visit Investor.gov.
Compare ETFs and mutual funds
ETFs
Mutual Funds
|
ETFs |
Mutual Funds |
|
|---|---|---|
|
Trading |
Can be traded on an exchange throughout the day. |
Shares are bought and sold directly through a mutual fund company (or a broker for the fund).
|
|
Pricing |
Share prices can fluctuate throughout the day as shares are bought and sold. |
Traded only once per day after the markets close. Share prices are based on the fund’s net asset value, which is calculated at the end of each trading day. |
|
Fees |
Generally have fewer fees than mutual funds. There are no 12b-1 fees (annual marketing fee) and no load fees (basically, what you pay when you buy or redeem shares in a fund). |
Mutual funds may charge 12b-1 and load fees. However, there are “no-load” mutual funds – many index funds, for example, do not charge a load fee. |
|
Disclosures |
Many ETFs provide a daily disclosure of their holdings. |
Mutual funds are only required to report their holdings quarterly. |
|
Taxation |
ETFs may be more tax-efficient because of the way they are structured. |
Actively managed mutual funds may generate a higher tax bill depending on the activities within a portfolio (buying, selling, rebalancing, etc.). |
A quick word on taxes: Keep in mind that different types of investments come with different tax considerations. It’s a good idea to consult a professional tax advisor if you have any questions about how your investments may be taxed.
ETFs vs. index funds
What are index funds?
Index funds can be a type of mutual fund or ETF. So when you’re shopping for index funds, you may come across index mutual funds or index ETFs.
No matter the structure, an important thing to know about index funds is that they follow a specific investment strategy: Index funds are built to mirror or track a particular market index, like the S&P 500. (Note: You can’t invest directly in a market index, and that’s why it’s usually done through an index fund.)
Say you were to invest in a S&P 500 index fund—the fund’s portfolio would include stocks (either all or a representative sample) from that index. Because index funds aren’t necessarily trying to beat the performance of the market—but rather, to match it—they are commonly considered a type of passive investing.
For a closer look at index funds, visit Investor.gov.
Compare ETFs and index mutual funds
Let’s compare ETFs to index mutual funds (since index ETFs are simply another type of ETF).
ETFs
Index Mutual Funds
|
ETFs |
Index Mutual Funds |
|
|---|---|---|
|
Investment Strategy |
While there are index ETFs, not all ETFs have to track a market index. ETFs can be actively or passively managed. |
Index mutual funds take on a passive investment strategy. They track market indices like the S&P 500, Russell 2000 and Wilshire 5000 Total Market Index. (Note: Not all mutual funds have to track an index.) |
|
Trading |
Can be traded on an exchange throughout the day. |
Traded once per day. Shares are bought and sold directly through a mutual fund company (or a broker for the fund). |
|
Pricing |
Share prices can fluctuate throughout the day as shares are bought and sold. |
Share prices are based on the fund’s net asset value, which is calculated at the end of each trading day. |
|
Costs/Fees |
No 12b-1 and load fees. |
Many index mutual funds charge a 12b-1 fee. Some may also charge a load fee. |
|
Investment Minimum |
Typically low minimum requirements. Generally, you need at least enough money to purchase one share. |
Generally, low minimum requirements, but some funds may have higher requirements depending on the provider. |
ETFs vs. money market mutual funds
What are money market mutual funds?
A money market mutual fund, or simply “money market fund,” is a type of fixed income mutual fund. In other words, these funds typically invest in high-quality (translation: low risk of default) debt securities with short maturity dates. This may include things like certificates of deposit (CDs), US Treasury notes, municipal bonds, and corporate commercial papers.
Because of the type of investments they hold, money market mutual funds are generally considered to be less susceptible to market volatility than other types of investment options such as stocks.
Investors look to money market mutual funds when they want to park their money in an investment vehicle that’s relatively stable and where they’re able to generally earn higher interest rates than a traditional savings account.
Read more: What Is a Money Market Mutual Fund?
Compare ETFs and money market mutual funds
ETFs
Money Market Mutual Funds
|
ETFs |
Money Market Mutual Funds |
|
|---|---|---|
|
Trading |
Can be traded on an exchange. |
Not traded on an exchange. Can invest through a brokerage company or a bank. |
|
Fees |
Typically have low expense ratios. |
May come with more fees, like 12b-1 fee, depending on the provider. |
|
Types of Assets |
Stocks, bonds, commodities, and other types of securities. |
CDs, Treasury notes, municipal bonds, commercial paper, and other short-term debt instruments. |
|
Time Horizon |
Can invest for both short-term or long-term goals. |
Typically, for short-term goals since these investment funds come with short maturity dates (usually within 12 months). They’re generally not ideal for long-term investment goals like retirement planning. |
This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation. This article was prepared by and approved by Marcus by Goldman Sachs® but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, or any of its affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, nor any of its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed. You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format without the express written consent of Goldman Sachs. This foregoing restriction includes, without limitation, using, extracting, downloading or retrieving this information, in whole or in part, to train or finetune a machine learning or artificial intelligence system.
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