ETF vs. mutual fund

Both are pooled funds; the main differences are how they trade, their typical costs, and tax mechanics.

ETFs and mutual funds are both pooled investments, and often hold nearly identical portfolios. The practical differences are in the plumbing. A mutual fund transacts once per day at that day's net asset value (NAV); an ETF trades on an exchange continuously at a market price that can sit slightly above or below NAV.

Cost structures differ too. ETFs generally carry lower expense ratios for equivalent exposure and have no sales loads or minimums beyond one share. Mutual funds may impose minimum investments and, in some share classes, sales charges.

In taxable accounts, the ETF creation/redemption mechanism lets most ETFs shed appreciated securities in-kind, which historically has meant far fewer taxable capital-gains distributions than comparable mutual funds. In tax-advantaged accounts this difference mostly disappears.