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5 Reasons to Choose Mutual Funds Over ETFs for Your Portfolio

Byline profile imageEdited by Arturo Conde, CEPF®
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Byline profile imageEdited by Marie White, CEPF®
Byline profile imageReviewed by Brandon Renfro, CFP®, RICP, EA
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Investors can choose mutual funds over exchange-traded funds (ETFs) for many reasons. Mutual funds can offer access to professional managers who actively select and manage assets. These assets also use a wider variety of strategies and asset classes, making them ideal for different risk levels and financial goals. They can be a strategic option for long-term investors seeking expert management and diversified investments. These are five reasons why to choose mutual funds over ETFs.

If you want to build out your investment portfolio, a financial advisor can help you analyze investments while managing risk for your portfolio. 

Mutual Funds vs. ETFs: What’s the Difference

While mutual funds and ETFs are both popular types of investments, they differ in several key ways.

Mutual funds are typically actively managed, meaning a fund manager selects the securities to buy and sell in order to achieve the fund’s objectives. You can invest in mutual funds by buying shares directly from the fund company at the end of the trading day, based on the fund’s net asset value (NAV).

ETFs, by comparison, are usually passively managed and aim to track the performance of a specific index. ETFs are traded on stock exchanges throughout the day, allowing investors to buy and sell shares at market prices, similar to individual stocks. This intraday trading feature can offer more flexibility compared to mutual funds. Passive management also means better expense ratios due to lower fees. 

On average, however, mutual funds tend to deliver more capital gains for investors than ETFs do.

Why Choose Mutual Funds Over ETFs

These are five common reasons why to choose mutual funds over ETFs.

1. Professional Management

Mutual funds are typically managed by experienced portfolio managers who actively make investment decisions on behalf of their investors. These managers conduct in-depth research and analysis to select securities that align with the fund’s objectives. 

This active management can be particularly appealing to investors who prefer to rely on the expertise of financial professionals rather than making investment decisions themselves.

2. Greater Variety and Range of Funds

Mutual funds often offer a broader variety and range of investment options compared to ETFs. While the ETF market in the United States has exploded over the last 20 years, mutual funds still outnumber ETFs. With thousands of mutual funds available, investors can find funds that cater to specific sectors, regions or investment strategies. 

Whether an investor is interested in growth, income or a balanced approach, mutual funds offer diverse options to meet different financial goals. 

3. More Customer Service

Investors who value personalized customer service may find mutual funds more appealing. Mutual fund companies often provide dedicated customer support, offering guidance and assistance to investors. This can include help with account management, investment advice and educational resources. 

4. Automatic Transactions

Mutual funds also offer the convenience of automatic transactions, which can simplify the investment process. Investors can set up automatic contributions or withdrawals, making it easier to maintain a disciplined investment strategy. 

This feature is particularly useful for those who want to regularly invest a fixed amount without having to manually execute each transaction. Automatic transactions can help investors stay committed to their financial plans and potentially benefit from dollar-cost averaging over time.

5. They Trade at Net Asset Value

Unlike ETFs, which trade on exchanges at market prices that can fluctuate throughout the day, mutual funds trade at their net asset value (NAV) at the end of each trading day. This means that investors buy and sell mutual fund shares based on the fund’s NAV, which reflects the value of the underlying assets. 

For investors who prefer the stability of knowing they are transacting at the fund’s true value, this can be an appealing feature. Trading at NAV can also reduce the impact of market volatility on the purchase or sale of fund shares.

Costs and Fees: Mutual Funds vs. ETFs

When comparing mutual funds vs. ETFs, it is important to understand how fees and costs can affect your long-term returns. Even small differences in fees can add up over time, so knowing what you’re paying for — and why — is key to making the right choice for your portfolio.

  • Expense ratios: Both mutual funds and ETFs charge an annual fee called an expense ratio, which covers the costs of managing the fund. Actively managed mutual funds tend to have higher expense ratios — often between 0.50% and 1.00% or more — because you are paying for professional managers to research and select investments. ETFs, which are usually passively managed and track an index, typically have much lower expense ratios, sometimes as low as 0.03% to 0.2
  • Load fees: Some mutual funds also charge a sales fee, or load fee, which can be assessed when you buy (front-end load) or sell (back-end load) your shares. These can range up to 5.75% of your investment. Many no-load mutual funds are also available, but it is something to watch for. ETFs, on the other hand, do not charge load fees.
  • Trading costs: Mutual fund shares are bought and sold directly through the fund company at the fund’s net asset value (NAV) at the end of the day, with no trading commission. ETFs trade on stock exchanges like individual stocks, so you may pay trading fees if your broker does not offer commission-free ETFs.

While mutual funds are generally more expensive, their higher fees may be worth it for investors who value active management and personalized strategies. On the other hand, ETFs are often preferred by cost-conscious investors who want broad market exposure at a low cost.

Bottom Line

An investor discussing his portfolio with a financial advisor on the phone.

So, why choose mutual funds over ETFs? There are many reasons investors can choose mutual funds over ETFs. These assets provide access to professional management, where fund managers make strategic investment decisions to enhance returns. Mutual funds also provide a variety of options that allow investors to align their portfolios with specific goals. Additionally, mutual funds can simplify the investment process with customer service and the convenience of automatic transactions.

To determine whether to choose mutual funds or ETFs, ask a financial advisor which investment strategy will best suit your long-term objectives.

Investment Planning Tips

  • A financial advisor can help you build a personalized investment portfolio. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you want to know how much your investment could be worth over time, SmartAsset’s free investment calculator could help you get an estimate.

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