The mutual fund industry is facing a new challenge as exchange traded funds (ETFs) are appealing more to the smaller, individual investor.

While the ETF industry is much smaller right now, but they are fighting for your investment dollars, and have many qualities that can win the community over, reports Andrew Leckey for The Baltimore Sun.

Here are some of the highlights:

• ETFs have expense fees/ratios that are substantially mower than a mutual fund. Especially during a tight year, when returns are low, every basis point makes a difference.
• Since ETFs trade shares throughout the day on an exchange, they are presenting more flexibility than a mutual fund which closes once at the end of the day.
• Ron DeLegge for ETF Guide says that a number of value-oriented ETFs have outperformed the active mutual funds with value-based managers.
• ETFs have hit important niche markets, making currencies, commodities and alternative energy accessible for every investor.

Mutual funds do have a leg up on active management, where ETFs have only recently broken the ice in this area. Also, mutual funds are a staple within the retirement packages and 401(k) plans. Once ETFs can get a foothold in these areas, look out!

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