Question

How are Mutual Funds and ETFs useful tools in constructing efficient risk/return optimized portfolios for investors? How are they similar / different? What types of tools are available to assist us in selecting and evaluating these investment vehicles?

Answer 1

Mutual Funds are specialised funds which are investing in different assets and offer high diversification because they are not concentrated in one stock.

Exchange traded fund are those funds who are traded on the stock exchanges and they are mostly passive and closed ended funds so these funds are replicating the index and it means that exchange traded fund will be highly diversified.

Mutual Funds are not traded over the stock exchanges and exchange traded fund are mainly identified by being traded on stock exchanges.

They are similar because they are having a pool of different assets and they are managed by professionals and they are having net asset value, which are relatively adjusted against the market price changes.

We can choose different types of mutual fund and exchange traded fund looking at their past performance and assets under management as well as net asset value as this will give a fair idea about the performance of these fund in the past and and estimation of performance of these funds in the future