The biggest difference between ETFs and mutual funds is that ETFs are usually passively managed while mutual funds are actively managed. For mutual funds, this means that fund managers actively buy and sell securities within the fund in order to try to beat the market. Passively managed ETFs on the other hand are left for longer periods of time without restructuring. Due to the actively managed style of mutual funds, they usually have higher fees and expense ratios than their ETF counterparts. Some other key differences between ETFs and mutual funds are: ETFs are traded during the stock market opening hours, while mutual funds are purchased at the end of the trading day Mutual funds have high minimum initial investment Mutual funds have more tax liabilities ETFs have a higher liquidity ETFs simply try to match market returns, while mutual funds strive to outperform the market Understanding your ETF Exchange-traded funds are excellent investments for beginners due to their many benefits. They are low-cost investment vehicles, offer immediate diversification and have low minimum investment thresholds. However, before investing in an ETF you need to understand the specifics of the ETF itself.