ETFs vs mutual funds in 2026 and key differences investors should know

Investors have a growing list of exchange-traded funds (ETFs) and mutual funds that they can choose from as they consider ways to structure their investment portfolios, though there are important differences between the two types of funds.

ETFs have grown rapidly as an investment category in recent years since they were developed in the early 1990s, with the total assets of the U.S.-listed ETF industry totaling about $13.5 trillion at the end of 2025 after increasing 30% year-over-year, according to the Institute of Business & Finance.

Mutual funds have been in existence for a little more than a century and the IBF’s data shows that mutual funds had $31.4 trillion in net U.S. assets at the end of last year, which amounts to an annual increase of about 10%.

“ETFs and mutual funds are both designed to help investors pool their money to invest in a broad mix of stocks or bonds, offering the benefits of diversification and professional management,” Kathy Kellert, head of index equity product at Vanguard, told FOX Business. “Many are index funds, where portfolio managers work to closely track a specific benchmark.”

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ETFs are growing faster than mutual funds in terms of total U.S. assets, according to IBF data. (Jeenah Moon/Reuters)

For investors considering the similarities and differences between ETFs and mutual funds as they weigh which may be the better fit for their portfolio, there are a number of factors they should take into account – including how they trade, tax efficiency and whether they’re actively or passively managed.

“Ultimately, both ETFs and mutual funds can play an important role in a well-diversified, long-term investment strategy. The right choice depends on an investor’s preferences around trading flexibility, tax considerations, and overall financial goals,” Kellert said.

How they trade

Vanguard’s Kellert said that, “ETFs trade on an exchange throughout the day, like stock, with prices that update in real time. Mutual funds, by contrast, are priced only once daily after the market closes, and all investors receive that same end-of-day price.”

Rizwan Hussain, senior investment portfolio strategist at Schwab Asset Management, told FOX Business that the price for an ETF is “reflecting the underlying portfolio holdings’ prices, providing investors liquidity during the day.” 

The opening bell of the New York Stock Exchange in New York City, on 28 May 2025. (Adam Gray for Fox News Digital)

“But when you buy or sell ETF shares, the price may be less than the net asset value (or NAV) of the ETF. This discrepancy (aka: the ‘bid/ask spread’) is often nominal, but for less actively traded ETFs, that might not always be the case,” he said.

Hussain added that mutual folders are executed once per day with the price…