Putting Your Foreign Investment in ETFs versus Mutual Funds

By Ann C. Logue

Part of Emerging Markets For Dummies Cheat Sheet

Exchange-traded funds (ETFs) and mutual funds are popular ways for people to invest in emerging markets because they offer diversification and professional management. The two have some differences between them, though, such as:

  • Mutual funds are usually actively managed, with the portfolio managers buying and selling securities as they find better opportunities. ETFs are usually managed against an index, with the fund managers buying the securities in the index in the same proportion.

  • You can often purchase mutual funds directly from a fund company. You purchase ETFs through a brokerage account.

  • Some mutual funds have very high fees. Fees on ETFs tend to be low.

  • Mutual funds are designed for long-term investors. ETFs are a better choice for investors who want to be active traders.