An ETF and a mutual fund both bundle many securities into one investment run by a professional manager. The difference is mostly in how you buy them and what you pay. An ETF trades on a stock exchange through the day at its market price, and you usually pay a commission to buy or sell it. A mutual fund is bought and sold at its net asset value, worked out at the end of the day, through an advisor or a mutual fund dealer. ETF MERs are usually lower than mutual fund MERs in the same class, and many mutual funds pay the advisor’s firm a trailing commission out of the MER. This page sets the two side by side.
On this page: The differences · Is an ETF a mutual fund? · Costs · Costs over time · Tax · Returns · Index funds · Which fits · Switching
What’s the difference between an ETF and a mutual fund?
| ETF | Mutual fund | |
|---|---|---|
| Where you buy it | A trading account with an investment dealer, full-service or online | From a financial advisor or a mutual fund dealer |
| Price | Market price, changing through the trading day | Net asset value, generally calculated once each business day |
| Minimum | No minimum investment amount | Set by the fund, and shown in its Fund Facts |
| Ongoing cost | The MER, usually lower than a mutual fund’s in the same class | The MER, which can include a trailing commission |
| Cost to buy or sell | Usually a commission, and the bid-ask spread is part of the cost of owning one | A sales charge (load) on some funds |
| Regular contributions | Many discount brokerage accounts don’t allow automatic purchases | Can be set up as an automatic contribution plan |
| Distributions | Not reinvested, unless your firm offers a program that buys more units | Usually reinvested in more units unless you ask for cash |
| Management | Most track an index, though many are actively managed | Usually actively managed |
What they share matters too. Both hold a collection of investments owned by many investors and run by a professional manager. Both have an MER, paid by the fund as a yearly percentage of its value. A mutual fund’s fees are in its Fund Facts and simplified prospectus, and an ETF’s are in its ETF Facts and prospectus. How the money is taxed depends on the account, not on which kind of fund it is (see tax).
Is an ETF a mutual fund?
In everyday use, no: “mutual fund” usually means a fund you buy from the fund through a dealer, and “ETF” one you buy on an exchange. Under Canadian securities rules, though, the two are close relatives. National Instrument 81-102, a securities rule, applies to “a mutual fund that offers or has offered securities under a prospectus”, and it also refers to the “exchange-traded mutual fund”. So in securities law the two fall under the same rule; what sets an ETF apart is that it trades on an exchange through the day at a market price.
How do the costs compare?
The MER. Both kinds of fund pay a management expense ratio out of the fund’s assets; you don’t pay it directly, but it lowers your return. The Ontario Securities Commission says mutual fund MERs range from under 1% to over 3%, and that ETF MERs are usually lower than mutual fund MERs in the same class.
Trailing commissions. Most mutual fund companies pay the advisor’s firm a trailing commission every year you hold the fund, for the advice and service you get. It comes out of the management fee, so it’s already in the MER. Since June 1, 2022, funds that pay one can’t be offered to self-directed investors, and new purchases under a deferred sales charge are banned. Trailing commissions explains the ban and the fund series it created.
Costs of buying and selling. With an ETF you usually pay a commission on each trade, and the bid-ask spread, the gap between what buyers will pay and what sellers will accept, adds to the cost of owning one. Some mutual funds charge a sales charge when you buy or sell, and some charge a fee if you sell soon after buying, for example within 30 days. The full list of what an ETF costs beyond its MER is on the MER calculator page.
What does the fee gap cost over time?
Small differences in fees can grow into large differences in returns, because the money paid in fees also stops growing.
Example, on the MER calculator’s starting inputs. Invest $50,000 and add $500 a month for 25 years at a 7% return, once in a fund with a 0.20% MER and once with a 2.00% MER.
- At 0.20%: $667,059.
- At 2.00%: $473,060.
- The gap: $193,999.
Each month the contribution goes in first and the balance then grows by the return minus the MER, divided by 12.
The example is hypothetical: the return isn’t a forecast, and neither MER is a particular fund’s. The MER calculator runs the same arithmetic with your own amounts and fees.
Which is more tax-efficient?
Inside an RRSP or RRIF, neither a mutual fund nor an ETF is taxed until you take the money out, and in a TFSA there is no tax on it in the plan or when you withdraw it. In a non-registered account, the rules are the same for both kinds. A mutual fund’s distributions are taxable in the year you receive them, even if they’re reinvested, and an ETF’s distributions and the gain when you sell it are taxed too. How an ETF’s own distributions are made up and taxed is on how ETFs are taxed in Canada.
Does one earn more than the other?
The wrapper doesn’t decide the return: what the fund holds, how it’s managed and what it costs do. The Ontario Securities Commission notes that, according to some studies, most mutual funds are unlikely to beat their benchmark consistently over the long term. Its investor site adds that passive strategies can often outperform active ones once the costs of running funds and making trades are counted. Why index funds cost less has the scorecard figures comparing active funds with their benchmarks.
What about index funds?
“Index fund” describes the strategy, not the wrapper: index funds are generally sold as mutual funds or as ETFs. An index mutual fund tracks an index like an index ETF, but you buy and sell it through a mutual fund dealer. Choosing between the two, and how to buy either, is covered in index fund or ETF.
When does each tend to suit?
A mutual fund tends to fit when:
- you want new money to go in on a schedule through an automatic contribution plan;
- you work with an advisor and pay for the advice through the fund’s trailing commission.
An ETF tends to fit when:
- you have, or will open, a trading account with an investment dealer;
- the lower MER matters to you, and you trade seldom enough that commissions don’t eat into it; trading fees can add up quickly on small amounts.
A robo-advisor sits between the two: in most cases it builds your portfolio from ETFs and/or low-cost mutual funds, and charges a fee, usually a percentage of the portfolio’s value. How that compares with running your own ETF portfolio is in robo-advisor vs ETF portfolio.
How do you switch from mutual funds to ETFs?
Check what selling costs. Units bought under a deferred sales charge before the June 2022 ban still carry their redemption fee schedule, and a short-term trading fee can apply if you bought recently. Both are in the fund’s Fund Facts.
Check the account. In an RRSP, RRIF or TFSA, selling a fund and buying an ETF inside the account isn’t taxed while the money stays in the plan. In a non-registered account, selling or redeeming units is taxed on the gain, if any, usually as a capital gain:
You usually have a capital gain or loss when you sell capital property or are considered to have sold it, and you report it for the calendar year of that sale. Examples of being considered to have sold property include exchanging it for another property, giving it (other than cash) as a gift, having your shares or other securities converted or redeemed or cancelled by the corporation, an option you hold expiring, settling or cancelling a debt owed to you, transferring certain property to a trust, the property being expropriated, stolen or destroyed, changing its use, leaving Canada, and the owner's death.How the gain is worked out and how much of it is taxed is on the capital gains page.
Check where the fund can go. A fund series that pays a trailing commission can’t be offered to self-directed investors. If you’re moving to a self-directed account, ask your current firm what happens to such a fund, and see trailing commissions for what discount brokers did with existing holdings.
Decide what to buy. One-fund portfolios are compared on all-in-one ETFs, and building a mix of several ETFs is on the Couch Potato portfolio page.
Where to go next
- Mutual funds in Canada: series, sales charges and how to compare funds
- MER calculator: what a fee gap costs on your own numbers
- How ETFs are taxed in Canada
- Canadian ETFs by category: comparing ETFs with each other
- Brokers and trading platforms
- ETFs explained, including how to buy an ETF
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Capital Gains – 2025
- GetSmarterAboutMoney.ca: Mutual fund fees | GetSmarterAboutMoney.ca