The big idea behind ETFs was to give investors a tax-efficient and liquid product that was not a mutual fund. At their core, both ETFs and mutual funds are made up of money pooled by many investors, the premise being that individual investors have access to economies of scale and greater diversification they otherwise wouldn’t.The most obvious difference to a mutual fund is that ETFs are exchange traded, so we can transact in the ETF throughout the day, rather than at one set point each day as in the case of a mutual fund tracker (typically around midday). This provides additional flexibility in managing portfolios and means whole units of the fund can be bought and sold between investors without needing to buy and sell the underlying holdings of the fund.Flexibility is just one part of the equation. ETFs allow us to understand the exact price at which we will purchase or sell, before the transaction takes place. This is critical to efficiently managing portfolios, and to many investors’ surprise this is not the case with mutual funds. Because a mutual fund index tracker prices and trades once a day, you will typically not know the price at which you have bought or sold until after the transaction. ETFs, on the other hand, trade on recognised stock exchanges, meaning pricing visibility is high and they can be traded whenever the relevant stock market is open.Similarly, ETFs offer daily transparency on their holdings, allowing us to better understand and model risk, whereas mutual funds typically offer investors this insight once a month (and often delayed).Finally, the range of ETFs on offer is much broader than that of mutual funds. ETFs offer access to many assets that tracker funds do not, and in many other shapes and forms. This provides us with more tools with which we can implement our investment ideas, and allows a higher degree of risk control and granularity when managing portfolios.