By Shea Sanche, CFP® · Last reviewed: April 2026
Mutual funds and ETFs both hold diversified assets - but they work differently, cost differently, and suit different investors. Here's a clear breakdown.
Structure: How They're Actually Different
Both mutual funds and ETFs pool money from multiple investors and hold a diversified portfolio of securities. The key structural difference is how they trade. Mutual funds are priced once daily after the market closes - you buy or sell at that day's net asset value (NAV). ETFs trade on a stock exchange throughout the trading day, just like individual stocks, with prices fluctuating continuously. This means ETFs require a brokerage account to purchase; mutual funds can be bought directly through a bank or fund company. For many Canadians who have historically accessed investments through bank branch relationships, mutual funds were simply what was available - not necessarily what was optimal.
Cost: The Most Important Difference
Canadian actively managed mutual funds carry some of the highest management expense ratios in the developed world - typically 1.5% to 2.5% annually for equity funds. Comparable ETFs - particularly index-tracking ETFs from providers like Vanguard, BlackRock (iShares), or BMO - typically charge 0.05% to 0.30% annually. Over 20 years, the fee differential can easily represent hundreds of thousands of dollars on a substantial portfolio. Read our post on investment fees in Canada for a detailed breakdown.
Active vs. Passive Management
Most mutual funds in Canada are actively managed - portfolio managers make decisions about which securities to buy and sell, attempting to outperform a benchmark index. Most ETFs are passively managed - they simply track an index and don't try to beat it. The body of research on active vs. passive management is extensive and consistent: over long periods, the majority of actively managed funds underperform their benchmark index after fees. This is the foundation of the case for index investing through low-cost ETFs.
When Mutual Funds Still Make Sense
Despite the fee disadvantage, mutual funds may still be appropriate in certain contexts: when access to institutional or specialty strategies is only available in mutual fund form; for systematic investment plans where the fund company allows small, frequent purchases without commission; or in group savings plans where the investment menu is limited to mutual funds. The mutual fund vs. ETF question ultimately intersects with the broader question of advisory value and fee transparency. Our Financial Advice Review Clarity Tool can help assess whether your current investment arrangement is working in your best interest.
Common Questions
Answers to the questions people actually ask.
How do financial advisors in Canada get paid?
What is a normal advisor fee in Canada?
Are financial advisors worth it in Canada?
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Key Takeaway
The shift from mutual funds to ETFs is largely about fees. A 1% to 2% annual fee difference compounds into hundreds of thousands of dollars over an investing lifetime. For Canadians comfortable with self-directed investing, ETFs are almost always the better choice.