Final answer:
ETFs (Exchange-Traded Funds) and mutual funds (MFs) can both be passively managed, but ETFs provide the ability to trade like stocks and have end-of-day pricing, while MFs are bought/sold at NAV and have intraday pricing. ETFs generally have lower expense ratios compared to MFs.
Step-by-step explanation:
Index ETFs vs Index MFs:
ETFs (Exchange-Traded Funds) are passively managed, meaning they aim to replicate the performance of a specific index, such as the S&P 500, by holding the same stocks in the same proportions as the index. On the other hand, mutual funds (MFs) can be either actively or passively managed, but index MFs typically aim to mimic the performance of a specific index. So, both types of funds can be passively managed.
ETFs can be bought and sold on a stock exchange throughout the trading day, just like stocks, allowing investors to take advantage of intraday price movements. In contrast, MFs are bought and sold at their net asset value (NAV) at the end of the trading day.
In terms of expense ratios, ETFs generally have lower expense ratios than mutual funds. This is because ETFs are typically structured as index funds with lower management fees, while mutual funds may have higher fees due to active management and other costs.
Lastly, ETFs have end-of-day pricing, which means their net asset value is calculated at the end of the trading day and is based on the closing prices of the underlying securities. In contrast, mutual funds have intraday pricing, which means their NAV is calculated throughout the trading day based on the current market prices of the underlying assets.