ETF assets are surging. Here's how they differ from mutual funds

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Investors have a growing list ofexchange-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 fundshave been in existence for a little more than a century. 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. 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."

HOW ETFS CAN BE EFFECTIVE BUILDING BLOCKS FOR RETIREES

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. differences betweenETFs and mutual fundsas 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.

Vanguard's Kellert said that, "ETFs trade on an exchangethroughout the day, like stock, with prices that update in real time. Mutual funds, by contrast, are priced only once daily after the market closes,. 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,. for less actively traded ETFs, that might not always be the case," he said.

Hussain added. mutual folders are executed once per day with the price based on thenet asset value (NAV)at market close.

ETFS VS MUTUAL FUNDS IN 2026: WHICH IS RIGHT FOR YOUR PORTFOLIO?

Kellert said that ETFs are generally moretax efficientthan mutual funds because of how they trade. the mechanisms fund managers use to rebalance the ETF's holdings.

"Because ETF shares are typically exchanged between investors,. portfolio activities, like rebalances, are often handled 'in kind' – using securities rather than cash – ETFs are more likely to avoid realizing capital gains. Mutual funds. by contrast, may need to sell holdings to meet redemptions, which can generate gains that are distributed to all shareholders," she said.

Hussain noted that ETFs "can potentially generate fewer capital gains for investors since they may have lower turnover (particularly passive ETFs). can use the in-kind creation/redemption process to manage the cost basis of their holdings."

He added that because of those distinctions, mutual funds have historically been more relevant for investors holding them intax-deferred accounts.

Wedbush Securities analyst Dan Ives is launching an AI ETF.(iStock)

WHAT ARE ACTIVE ETFS AND HOW ARE THEY RESHAPING HOW AMERICANS INVEST?

Data from the IBF shows that across ETFs and mutual funds, the amount ofpassively managedassets in U.S. funds was about $19.3 trillion at the end of December 2025, compared with about $17.4 trillion in actively managed funds.

"Most ETFs are passive investments pegged to the performance of a particular index ('passive'); however. 'active' ETFs have gained popularity over the last year in particular," Hussain said.

There are also distinctions between ETFs. mutual funds in terms of how frequently they disclose theirportfolio holdings, with ETFs typically doing daily disclosures while mutual funds are at longer intervals which can be advantageous for managers of active mutual funds.

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"ETF managers are generally required to disclose fund holdings daily. whereas mutual funds disclose full portfolio holdings on a less frequent basis, typically monthly or quarterly. This later disclosure periodicity is typically a benefit to active mutual fund managers who are looking to avoid disclosing their strategy details to competitors," Hussain added.

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