Whats the difference between a mutual fund, index fund, and ETF? Is there also a way to track the performance of them?

Hi Hawthorn,

I get that it must be confusing for a beginner who's looking to invest!

Basically, MFs and ETFs are a basket of investments that can be traded as a whole, while an index measures the performance of a basket of investments, but cannot be traded.

An ETF usually (but not always) tracks an index. So it is simply the tradeable, liquid form of an index that allows investors to own the investments that the index is measuring. Ie for the S&P 500 index, VOO is an ETF that tracks it.

You can think of an index like a recipe or ingredient list for a specific dish. If you want to make the dish, you don't buy the recipe, you buy the actual ingredients. In this case, a corresponding index ETF is like a pre-packed DIY meal kit that has all the ingredients required for the dish nicely packaged for you to buy. So you can simply buy that to make the dish on your own.

On the other hand, MFs are managed by fund managers who are trying to outperform the market. They pick various investments based on their analyses and are not trying to track an index. So their holdings will likely not be the same over a period of time.

To track the performance, you can use something like yahoo finance and search for the relevant funds.

You can also check out this post for an introduction to ETFs, where the difference between a MF/ETF/index is explained more in detail!

Hope this helps & all the best!

Regards,

thefrugalstudent

You may read this article:

https://www.investopedia.com/ask/answers/033015...

In summary:

1. Mutual Fund (what we called Unit Trust in Singapore) is an investment product where the Fund Manager will invest in equities, fixed income and other assets according to the mandate set for the fund. For example, there is Nikko AM Shenton Short Term Bond Fund that invest in short term bonds, money market funds, etc.

2. Index Fund is a special type of Mutual Fund that invests in the constituents of an index. For example, S&P 500 Index Fund will invest in the 500 US companies listed in S&P 500,

3. ETF (Exchange-Traded Fund) is another type of investment product, very similar to Mutual Fund but they are traded in stock exchange. For example, there is STI ETF (ticker symbol ES3) traded on SGX that invest in the 30 STI component stocks.