Jasmine Birtles
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Investment Funds vs. ETFs: Which is Right for You?
Ruby Layram
12th Mar 2025
If you’re looking to invest but feel overwhelmed by all the jargon, you’re not alone. Terms like “investment funds” and “ETFs” get thrown around a lot, and while they might sound similar, they have some key differences. So, which one is right for you?
In this guide, we will take a look at the difference between the two types of investments in no-nonsense way so you can make the best decision for your money.
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What Are Investment Funds?
Investment funds, also known as mutual funds or unit trusts, are a way for investors to pool their money together. A professional fund manager then takes that pot of money and invests it in a range of assets, such as stocks, bonds, or even property.
How do investment funds work?
When you invest in a fund, you’re essentially buying units or shares of that fund.
The price of these units is calculated based on the value of all the assets the fund owns.
The fund manager makes the investment decisions on your behalf—deciding which assets to buy, hold, or sell to try and generate the best returns.
Key features of investment funds
- Actively managed: Most traditional investment funds are actively managed, meaning fund managers try to outperform the market by picking investments they believe will do well.
- Higher fees: Because there’s a fund manager making all these decisions, investment funds tend to have higher fees compared to ETFs.
- Traded once a day: Unlike stocks or ETFs, you can’t buy and sell investment fund units instantly. Their prices are calculated at the end of the trading day, so you’ll buy or sell at that price.
- Diversification: Because funds invest in a mix of assets, they spread risk, which can be a good thing if markets get rocky.
What Are ETFs?
ETFs, or Exchange-Traded Funds, work in a slightly different way.
Instead of pooling money into a fund that’s managed actively, ETFs are usually passive investments that track an index (such as the FTSE 100 or S&P 500).
How do ETFs work?
ETFs are listed on stock exchanges, just like individual company shares. This means you can buy and sell them throughout the day at market prices.
Instead of relying on a fund manager to pick investments, ETFs automatically follow a specific index or theme.
The key features of an ETF
- Passively managed: Most ETFs simply track an index, sector, or asset class. No fund manager is actively trying to beat the market.
- Lower fees: Because there’s less hands-on management, ETFs tend to have lower fees compared to investment funds.
- Traded like shares: You can buy and sell ETFs at any time during market hours, just like individual stocks.
- Transparency: ETFs disclose their holdings daily, so you always know exactly what you’re investing in.
Investment Funds vs. ETFs: The Key Differences
Now that we’ve covered the basics, let’s compare them side by side.
1. Management style
- Investment Funds: Actively managed by professionals who try to beat the market.
- ETFs: Mostly passively managed, tracking an index instead of trying to outperform it.
2. Costs and fees
- Investment Funds: Higher fees due to active management. These usually include an ongoing charge (often 0.75% – 1.5% per year).
- ETFs: Lower fees because they track an index automatically. Costs typically range from 0.05% – 0.5% per year.
3. Buying and selling
- Investment Funds: Traded once a day at a set price.
- ETFs: Traded on the stock market in real time, just like shares.
4. Performance potential
- Investment Funds: If the fund manager is skilled, they could outperform the market—but they could also underperform.
- ETFs: Tend to match the market rather than beat it. Historically, passive investing has outperformed most actively managed funds over the long term.
5. Transparency
- Investment Funds: Often disclose holdings quarterly, so you might not always know what’s inside.
- ETFs: Disclose holdings daily, so you can see exactly what assets you’re exposed to.
Which One Is Right for You?
The best choice depends on your investment style, risk tolerance, and goals. Here’s a simple way to decide:
You might prefer investment funds if…
- You like the idea of having a professional pick investments for you.
- You’re happy to pay higher fees in the hope of getting better returns.
- You’re investing for the long term and don’t mind not being able to trade instantly.
You might prefer ETFs if…
- You want low-cost, transparent, and simple investments.
- You like the flexibility of trading during market hours.
- You believe passive investing (tracking the market) is the best strategy for long-term growth.
Final Thoughts
Both investment funds and ETFs have their pros and cons, but the best option comes down to your personal preferences.
If you want a hands-off approach with lower fees, ETFs might be the way to go. But if you value professional management and don’t mind paying a little extra, investment funds could be worth considering.
Whichever route you take, the key is to stay invested, stay diversified, and keep an eye on fees. Investing should be about building wealth over time, not chasing quick wins.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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