Mutual funds are great for a buy-and hold strategy but are not as nimble as ETFs. Since mutual funds can only be bought and sold at the end of the day, they are not used for trading. [ETFs VS. Index Funds]
Plus, large redemptions on mutual funds can cause capital gains distributions for non-redeeming shareholders. This is a major flaw of mutual funds. There are no margin trades allowed, no limit orders or short selling permitted with mutual funds
On top of all of this, the costs associated with investing in mutual funds are much higher due to sales loads, and active management.
Investors should have a good picture and outline of their investment goals and what they expect their investment outcome to be. It is apparent that ETFs and mutual funds differ greatly, so it is up to the investor to decide which tool is going to fit into their investment profile.
Tisha Guerrero contributed to this article.
