One of the many advantages of exchange traded funds (ETFs) is that they’re, on average, cheaper than most mutual funds.

How does that happen? Easy – ETFs are passive investment tools, meaning that there’s no manager to pay, says Saj Karsan for iStockAnalyst. When you buy a mutual fund, there are managers making moves, buying and selling within the fund. They’re not doing this for free, and the cost is passed onto investors. Sometimes it can be hefty, too.

ETFs, however, track an index and therefore have lower fees. They don’t have to keep pools of cash around for when individuals buy and sell shares, either. That’s because shares are issued in big blocks traded on the secondary market.

If you’re an index owner who owns mutual funds, there could be an ETF that invests in the same index. Making the switch could save you in fees, so do a little research.

Tags: Mutual Funds