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One question that arises often is what is the difference between mutual funds and exchange-traded funds (ETFs)? These are two of the most common investment products that can help you reach your longer-term financial goals.1
Mutual funds still dominate the investment market in Canada with $2.2 trillion worth of assets.2 ETFs have become a popular choice for investors with $546 billion in assets under management as of March 2025.2
According to a recent Scotiabank study among Canadian investors with assets of at least $25,000:1
• 53% hold mutual funds
• 27% hold ETFs
Let’s learn about these two types of investment funds, some of their key features and differences.
A mutual fund is a professionally managed investment fund that pools money from different investors to invest in various asset classes like stocks, bonds, or cash.
Mutual funds are typically actively managed by investment professionals who conduct research to inform their decision-making to identify, buy, and sell securities for the fund. The costs of running and servicing a mutual fund are represented by a Management Expense Ratio (MER). It's shown as a percentage of the fund's average net assets for the year and can vary based on the mutual fund you purchase.
With a mutual fund, you can diversify your investments to help manage investment risk. Thoughtful diversification means investing in a range of different asset classes, geographies, industries, and company sizes, which can help to manage investment risk and enhance long-term return potential.
There are thousands of mutual funds in Canada, each having different risks, and they come in a variety of options to meet different investor needs – for example:
- fixed income funds that invest mainly in treasury bills or bonds are designed to offer more security or regular income
- equity funds that hold mostly stocks aim to provide greater growth potential
- balanced funds can provide income and long-term growth potential by investing in a blend of stocks and bonds
Considering investing in mutual funds?
Mutual funds are well-suited for investors who don’t have the desire or may not have the time or knowledge to manage their investments. Instead, they’re getting access to experienced investment professionals who can manage their investments for them.
Learn more: What you need to know about mutual funds
Mutual funds have been around for decades and continue to be the most common investment product1 in Canada for several reasons:
Diversification: You get a diversified investment without having to purchase individual securities by yourself. A single mutual fund can give you access to a broad range of securities to help you balance risk and reward.
Active management: Most mutual funds use an active management approach, meaning fund managers actively watch market conditions and use their knowledge and experience to make investment decisions, including which securities to buy and sell and when to buy and sell them.
Choice: While most mutual funds are actively managed, you can also invest in funds that passively track an index instead. These are commonly referred to as index funds and are designed to closely track the performance of a market index (for example the S&P 500 or S&P/TSX Composite Index) rather than outperform it. These index funds are typically less expensive than their actively managed counterparts.
Easy, automatic investing: Most mutual funds let you set up automatic Pre-Authorized Contributions (PACs) and automatically reinvest any dividends or gains. This makes it easy to build your savings over time.
No trading fees: Many mutual funds can be purchased directly from fund companies without paying trading commissions, which is good, especially for investors making frequent purchases.
ETFs are similar to mutual funds in the sense that they're pooled investment funds that include many individual securities, depending on the index they track.
Most ETFs are passively managed, where the goal is to simply track the performance of a specific index, similar to an index mutual fund mentioned earlier. The indices can vary but some examples include the S&P 500 (U.S. stocks) or S&P/TSX Composite Index (Canadian stocks). When the underlying ETF is performing well, so would your ETF. If the index were to drop in value, so would your ETF. Since passive ETFs have no active or professional management, they tend to have lower fees when compared to actively managed investment funds.
While mutual funds are bought or sold at the end of the trade date, ETFs trade on stock exchanges just like individual stocks. This means their prices change throughout the day, and you can buy or sell them any time the market is open.
Considering investing in ETFs?
Passively managed ETFs are a good fit for investors who prefer not to work with an advisor and have the time to dedicate to researching and trading funds. They tend to appeal to investors who want more control over their investments.
ETFs are becoming a more popular investment option. Here are some highlights:
Lower management fees: ETFs tend to have lower fees when compared to mutual funds. This is particularly true for passive ETFs, which aim to track an index instead of having professionals actively managing investments.
Trading flexibility: Unlike mutual funds, which only trade once a day, ETFs can be bought and sold at any time throughout the trading day. This may give you more control over when you buy and sell.
Real-time updates: Most ETFs show their complete holdings every day, so you always know exactly what assets you own. Mutual funds typically only report their holdings monthly or quarterly.
Did you know?
What investment approach are Canadian investors using1
68%
Work with an advisor
23%
Manage their investments through an online brokerage service
7%
Work with a robo-advisor service
13%
Other
| Feature | Mutual funds | ETFs |
| Management approach | Most mutual funds are actively managed by a professional fund manager (other than index funds) |
Most ETFs are passively managed and aim to track an index |
| Trading | Traded and priced once daily after market close | Traded and priced throughout the day on exchanges until market close |
| Price | End-of-day closing price | Real-time market price |
| Fees* | Tend to have higher fees (MER) for active management | Tend to have lower management fees, but may also have trading fees or commissions |
| Reporting | Top holdings typically disclosed monthly, full holdings semi-annually | Holdings are typically disclosed daily |
| Automatic investing | Easily set up automatic contributions | Typically requires manual purchases |
*For a full breakdown of fees, review the fund facts document for mutual funds or the ETF facts document for ETFs.
There’s no single right answer when choosing between ETFs and mutual funds. The best choice depends on your personal investment style, goals, and preferences.
Many successful investors use both ETFs and mutual funds in their portfolios, taking advantage of the strengths of each for different parts of their investment strategy.
Scotia Essentials Portfolios™ combine a mix of ScotiaFunds® and cost-effective Exchange-Traded Funds (ETFs) into one convenient solution to help you achieve your most important financial goals.
Whether you're just starting out or looking to improve your existing investments, understanding the differences between ETFs and mutual funds is a valuable step toward making smart financial decisions for your future.
