What is the difference between an Exchange Traded Fund (ETF) and a traditional managed fund?

A traditional managed fund often has minimum investment requirements that an ETF does not have. ETFs usually have lower fees as passive investing strategies rely less on the skill and experience of the managers than active investing strategies. This makes them a cost effective way to diversify your portfolio and gain access to markets that traditionally tend to be more difficult to invest in.

Because of their ability to be traded on the stock exchange, ETFs are much more flexible. Managed funds are not always listed but ETFs can be traded easily through a broker. However, this means that to invest more money into an ETF you must pay a brokerage fee every time, unlike a managed fund where additional investments can usually be made with no extra cost.

Managed funds tend to trade the securities they hold more often than ETFs do which means higher brokerage costs. This additional cost affects the performance of the fund and the income you receive from it.