ETFs are listed on the stock exchange, managed fund units are not listed on the stock exchange. Retail investors buy and sell mutual fund units through a variety of distribution channels, including directly from a fund company or through a financial adviser or broker. The below table summarises some of the key differences between Listed Investment Companies, ETFs and Managed Funds:
Comparison of ETFs, Managed Funds and Listed Investment Companies
|Diversification of Investment||Low||High – Basket of securities||Depends on different funds – Basket of securities|
|Pricing||Continuous intra-day pricing||Continuous intra-day pricing||Daily quote after market close|
|Liquidity||Varies||Comparatively higher||Limited liquidity|
|Transparency||Varies||Comparatively higher||Low transparency|
A key difference is that managed fund shares do not trade throughout the day. Rather, managed funds are redeemable on a daily basis at a price that reflects the current market value of the fund’s portfolio securities. Also, ETFs must disclose information about their holdings daily, while managed funds have not needed to.
All day trading makes exchange traded funds more flexible than open ended managed funds, as investors have to wait until the end of the trading day to buy or sell mutual fund units.
To better understand the difference between ETFs and mutual funds, see How ETFs Work?