ETF vs Mutual Fund: What’s the Difference? (Easy Explanation for Beginners)

Introduction

If you're new to investing, you may have heard terms like ETFs and mutual funds. Both of these help you grow your money by investing in the stock market — but what's the difference?

In this article, we'll explain the difference between ETFs and mutual funds in simple terms and share some of the most popular ETFs of 2025.

What is a Mutual Fund?

A mutual fund is a pool of money collected from many investors. A fund manager uses this money to buy shares of multiple companies — like the Nifty 50 Mutual Fund, which invests in the top 50 companies in India.

Key Features of Mutual Funds:

Managed by experts.
You cannot buy or sell anytime — transactions are done at end of day (EOD).
Suitable for long-term investors.
Units are allotted based on NAV (Net Asset Value).

Example:

You invest ₹10,000 in a Nifty 50 mutual fund. The fund manager uses this to buy shares of Infosys, Reliance, TCS, etc., as per the Nifty 50 index.

What is an ETF (Exchange Traded Fund)?

An ETF is also a type of fund, but it is traded on the stock exchange — just like a stock.

Key Features of ETFs:

You can buy/sell ETFs any time during market hours.
They usually follow an index (like Nifty 50, Gold, Nasdaq).
Lower cost than mutual funds (low expense ratio).
You can start with just 1 unit, like ₹200 or ₹500.
They are passively managed, so no high management fees.

Main Difference Between ETF and Mutual Fund

Feature	Mutual Fund	ETF (Exchange Traded Fund)
How to Buy/Sell	Through AMC or apps	Directly on stock exchange
Timing	Only at end of day (EOD)	Anytime during market hours
Managed By	Active fund manager	Follows index (passive)
Cost (Expense Ratio)	Higher	Lower
Liquidity	Less (not instant)	High (instant buy/sell)
Minimum Investment	Usually ₹500 or ₹1000	Even ₹100 (1 unit)

Extra Benefit of Mutual Funds – Get Loans!

Do you know you can get a loan against mutual funds (LAMF)?

You can get up to 50% of your mutual fund value as a loan.
No credit score needed.
Interest rate: around 10.75% per annum.
However, you cannot sell those units while the loan is active.
Fast processing, and your investments stay safe.
However, you cannot sell those units while the loan is active.

Note: ELSS (tax-saving mutual funds) with a 3-year lock-in are not eligible.

Best ETFs to Consider in 2025 (Not Investment Advice)

📌 Always do your own research or talk to a financial advisor before investing.

1. SBI Nifty 50 ETF

Tracks top 50 companies.
Long-term growth and stability.
Expense Ratio: 0.03%
Returns (5 years): 15.6%

2. Nippon India ETF Nifty Next 50

Invests in companies ranked 51–100.
Slightly more risk, but higher returns.
Returns (5 years): 125%

3. Kotak PSU Bank ETF

Focuses on public sector banks.
Higher risk, higher reward.
Returns (3 years): 140%

4. Motilal Oswal Nasdaq 100 ETF

Invests in top US companies (Apple, Google, etc.).
Great for international diversification.
Returns (5 years): 23.6%

Conclusion

Both ETF and Mutual Fund are great tools for growing your resources. If you want something easy and managed for you then go with the mutual funds. If you want flexibility, low spending and direct trading, try using ETFs.

The best part? You can even combine both your portfolio!