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Exchange-traded funds (ETFs) versus index mutual funds

Exchange-traded funds (ETFs) and index mutual funds are both passive investment vehicles that offer advantages to investors, but there are important distinctions to consider before making an investment decision.

November 23, 2020

Key takeaways

Comparing apples to… apples?

Red apples and green apples: same shape, but the colors and flavors are a bit different. And yet, they’re both apples.

In their own way, Credit Suisse Asset Management’s exchange-traded funds and index mutual funds are like red and green apples. Structurally similar, but enough distinctions to consider carefully which one best suits your individual situation.

What distinguishes ETFs from index mutual funds?

ETFs and index mutual funds have a lot of things in common. They both replicate benchmark indices. Compared to actively managed investments, they can offer cost savings. They also save you time versus other strategies, because you’re not researching and selecting from among thousands of individual stocks. Additionally, both types of funds are broadly available to multiple investor types.

What’s more, an ETF and an index mutual fund can invest in exactly the same assets – there is no restriction on the indices that a passive fund can replicate. For example, you could have an ETF that tracks the Swiss Market Index (SMI) by investing in the top 20 Swiss stocks, and an index mutual fund could also replicate the SMI.

However, it helps to be aware of some key differences between the two types of funds:

  • Buying and selling
  • Intraday trading
  • Listing
  • Taxation

Buying and selling ETFs and index mutual funds

Our ETFs are bought and sold on secondary markets, between individual traders, and not directly from the fund management company. Index mutual funds are bought and sold through the fund management company that issues the fund. Some investors feel that ETFs are easier to trade because of the many platforms available via the internet.

ETFs, index mutual funds, and listing

ETFs are listed on public, regulated exchanges. Index mutual funds are not listed, because they are not traded via a secondary market.

Intraday trading

ETFs can be bought and sold continuously during the trading hours of the market they are listed on. This makes them more versatile than index mutual funds, which can be traded once a day based on the given fund’s net asset value (NAV). By being traded continuously, ETFs allow for limit orders , a useful feature for short-term traders.

Index funds and exchange-traded-funds (ETFs)

For illustrative purposes only. Historical performance indications and financial market scenarios are not reliable indicators of future performance.

Sources: Credit Suisse, Bloomberg

Taxation

In Switzerland, every transaction involving the purchase and sale of a foreign investment scheme is subject to a charge of 0.15%. Swiss-based funds are not subject to a stamp duty. As most ETFs are domiciled outside of Switzerland, and the few Swiss ETFs are still subject to a 0.075% stamp duty, Swiss-domiciled index mutual funds generally represent the best alternative for Swiss-based investors.

Here are some helpful links to give you more knowledge about ETFs and other funds that you can begin investing in to help you reach your personal financial goals:

That’s not all…

This brief guide is designed to give you a quick understanding of key differences between ETFs and index mutual funds. But there’s a lot more to learn, so be sure to browse around our website for more information.

And if you’re still thirsty for knowledge, or you’re ready to start investing, why not contact your financial advisor today? If you don’t have one, just reach out to us – we will be delighted to answer all your questions about investing in ETFs and index mutual funds.

Potential risks

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Source: Credit Suisse, unless otherwise specified.
Unless noted otherwise, all illustrations in this document were produced by Credit Suisse Group AG and/or its affiliates with the greatest of care and to the best of its knowledge and belief.

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