ETF vs mutual funds: which option is better?

The world of investing is full of choices, but few spark as much debate as the decision between ETFs and mutual funds. Both vehicles allow for portfolio diversification, but they differ fundamentally in terms of fees, performance, liquidity, and transparency. For over a decade, ETFs (Exchange Traded Funds) have experienced spectacular growth. Their promise? To replicate the markets in a simple, low-cost, and efficient way. Opposite them stand mutual funds—historically dominant—relying on active management with the ambition of outperforming the market. In this article, we will compare these two options in detail to help you determine which one might be best suited to your investor profile. We will illustrate this analysis with concrete use cases based on age or wealth, while also highlighting what Easyvest offers in this space.

What’s an ETF?

An ETF (Exchange Traded Fund) is a stock market-listed investment fund. Its purpose is to replicate the performance of a market index (such as the MSCI World, the S&P 500, or the BEL 20) automatically. Unlike a mutual fund that is actively managed, an ETF passively follows its reference index.

In practice, this means that when you invest in an ETF like the MSCI World, you indirectly own thousands of shares in major international companies. The ETF buys the securities that make up the index, in the same proportions, without attempting to select or adjust them based on market conditions.

Also read: ETF: everything you need to know to invest better

Why are ETFs attractive to investors?

• Very low fees: often below 1% per year, compared to 1,5% to 2% for mutual funds.
• Transparency: the composition of the ETF is known in real time.
• Liquidity: ETFs are traded like stocks, continuously during market hours.
• Diversification: each ETF allows you to instantly invest in a large number of assets.

According to an article published by Morningstar, the European ETF market saw 45.7 billion€ in inflows during the fourth quarter of 2023, closing the year with annual inflows of 143.9 billion€, an 80% increase compared to the 79.8 billion€ in 2022. This reflects a strong and growing trend in favor of ETFs among European investors.

ETFs appeal to both beginners and experts, and are perfectly suited for a long-term investment strategy thanks to their simplicity, efficiency, and low cost.

What is a mutual fund?

A mutual fund, often referred to as an actively managed fund, is an investment vehicle in which a professional manager actively selects the securities to include in the portfolio. The stated objective is generally to outperform the market—that is, to generate returns higher than a reference index.

This type of management relies on fundamental analysis, trend forecasting, or sector selection. It may involve frequent arbitrage and a high portfolio turnover rate.

Characteristics of mutual funds:

• High fees: management fees are higher (often >1,5%) and may include entry, exit, or performance commissions.
• Less transparency: portfolio reports are published only monthly or quarterly.
• Performance variability: only a small minority of managers manage to outperform their index over the long term.

Generally speaking, trying to beat the market as a whole is a strategy doomed to fail. As we demonstrate in our analysis “Nobody Beats the Market in Belgium”, only 1% of active managers manage to beat the market five years in a row. This finding seriously calls into question the relevance of active management versus ETFs, especially when factoring in management fees.

ETF vs mutual funds: detailed comparison

1. Management fees: significant differences

One of the most tangible advantages of ETFs over mutual funds lies in their significantly lower management fees. While an actively managed fund typically charges 1,5% to 2% per year, an ETF generally charges only 0.5% to 1%. This difference, which might seem minor in the short term, actually has a major impact on long-term net returns.

Let’s take a concrete example analyzed in our article “1% less in fees can generate 500.000€ in 40 years”. Two investors each invest 100.000€ over 40 years. One invests in an active fund with 2% fees, the other in an ETF with 1% fees. The result? The second ends up with nearly 500.000€ more. Why? Because fees eat away at compounded interest year after year.

In other words, every percentage point counts and can make the difference between a comfortable retirement and disappointing returns. In a world of market uncertainty, reducing fees is a strategic decision you can control starting today.

2. Long-term performance: ETFs dominate

Over the long term, ETFs deliver higher returns than mutual funds. In our study “ETFs vs active management in Belgium: 2024 return comparison”, we observed that the average annual return gap between index investing and active management is 2.3%, with variations depending on the investment profile:

• 1,8% for a defensive profile,
• 2,5% for a moderate profile,
• 2,7% for a dynamic profile.

These differences, while they may seem modest, have a significant impact on capital growth over the long term. For example, over a 10-year period, an annual return gap of 2,3% can translate into a difference of tens of thousands of euros on an investment portfolio.

This outperformance of ETFs is mainly due to their lower management fees and their ability to faithfully replicate market performance without trying to beat it, thus avoiding timing errors or poor stock selection. For investors looking to maximize long-term returns, ETFs represent a particularly advantageous option.

3. Transparency, accessibility, and flexibility

ETFs stand out from mutual funds not only in terms of fees and performance, but also through their transparency, accessibility, and flexibility—three essential qualities for modern, stress-free investing.

Transparency is one of ETFs’ major strengths: their composition is published in real time, allowing investors to know at any moment which securities they indirectly hold. In contrast, mutual funds only publish their holdings monthly or quarterly, making them harder to track.

Accessibility refers to how easily an investor can buy or sell a product. ETFs, being listed on the stock exchange, can be purchased from as little as a few dozen euros through a simple online platform, without entry fees or minimum investment requirements. Mutual funds, on the other hand, are often distributed by banks or insurers, with higher investment thresholds and sometimes entry fees of several percent.

Flexibility refers to the freedom of management offered to the investor: with ETFs, you can adjust your portfolio at any time during market hours, buy or sell with just a few clicks, rebalance your allocations, or even set up automated investment plans. Mutual funds often impose transaction delays (valuation at T+1 or more), which greatly limits this agility.

In short: ETFs give you total and immediate control over your investment, whereas mutual funds impose time, access, and visibility constraints.

Also read: “How to invest in ETFs in Belgium?”
 

4. ETF vs mutual funds: summary table

Criteria	ETF	Mutual funds
Management fees	Between 0,5% and 1% per year	Between 1,5% and 2% per year, often with entry, exit, or performance fees.
Long-term performance	Outperform mutual funds thanks to lower fees and faithful market replication.	Lower returns, with an average gap of 2.3% per year compared to ETFs.
Transparency, accessibility, flexibility	Real-time composition disclosure, accessible from just a few dozen euros, and fully manageable anytime through online platforms.	Monthly or quarterly composition reports, higher access thresholds, and limited transaction flexibility.

No matter your age, ETFs remain an optimal choice

Contrary to popular belief, there is no ideal age to start investing, but there is a strategy suited to every stage of life. And in all of these strategies, ETFs are an optimal solution: they are flexible, diversified, low-cost, and easily adaptable to changes in your personal or professional situation.

- At 25: building a strong foundation from the start

Starting to invest young means taking advantage of an invaluable asset: time. At this age, the goal is to maximize long-term capital growth. Global equity ETFs, such as those tracking the MSCI World, are perfect for this: they capture international market performance with broad diversification.

- At 40: structuring your wealth without sacrificing performance

At 40, your priorities shift: you’re thinking about your children, retirement, real estate… But that doesn’t mean you have to sacrifice returns. A balanced allocation of equity and bond ETFs lets you combine performance and stability. You maintain growth potential while reducing volatility.

- At 65 and beyond: generating income and protecting your capital

Even approaching or during retirement, ETFs remain highly relevant. Your objective changes: now you want to protect your capital while generating regular income. Bond ETFs and dividend-oriented ETFs help meet this need with excellent transparency and consistently low fees.

Also read “Investing in your 60s: structuring your capital to take advantage of it”.

- Conclusion: a flexible solution for every stage of life

No matter your age, ETFs adapt to your risk profile, investment goals, and time horizon. Their simple structure and low cost make them ideal for building, growing, or preserving your wealth.

What Easyvest offers

At Easyvest, we’ve made a clear choice to manage portfolios using ETFs. Why? Because we are convinced, supported by data, that this is the most effective, transparent, and cost-efficient strategy to grow your wealth over the long term.

Our portfolios are:

• 100% composed of globally diversified ETFs
• Personalized according to your risk profile and investment horizon
• Automatically monitored, with regular rebalancing

Thanks to our digital approach, you benefit from:

• 24/7 online monitoring
• A personal advisor to answer your questions
• Fees up to 5 times lower than those of traditional banks

Want to know what your potential returns could be by investing in ETFs with Easyvest? Start a free simulation on our website, or get in touch with one of our advisors.

Conclusion

ETFs have emerged today as the most relevant investment solution for the majority of individual investors. Their combination of low fees, reliable performance, and transparency makes them a powerful and easy-to-use tool, regardless of your profile or level of experience.

Mutual funds still hold marginal appeal for very specific strategies or highly personalized wealth management. But for most people, ETFs offer superior overall efficiency.

FAQ

1. Is it better to invest in an ETF or a mutual fund?

For most investors, ETFs are generally a better option than mutual funds. They offer lower management fees, greater transparency, and real-time trading flexibility. Because ETFs typically track an index, they tend to perform as well as the market itself—often outperforming mutual funds after fees are considered. Mutual funds, which rely on active management, have higher costs and less consistent returns. Unless you have access to a highly skilled fund manager or need a very specific investment strategy, ETFs usually provide better long-term value and efficiency for building wealth.

2. Is an active ETF better than a mutual fund?

Active ETFs combine elements of both traditional ETFs and mutual funds: they are traded on exchanges like regular ETFs but are actively managed with the goal of outperforming the market. Compared to mutual funds, active ETFs generally have lower fees, better tax efficiency, and greater liquidity. However, like mutual funds, their success depends on the skill of the manager. While they can outperform, many still fail to consistently beat their benchmarks. For investors seeking flexibility and active management, active ETFs can be a superior alternative to mutual funds, but passive ETFs often remain the most cost-effective choice.

3. Is the S&P 500 an ETF or a mutual fund?

The S&P 500 itself is not an ETF or a mutual fund—it is a stock market index representing 500 of the largest publicly traded companies in the United States. However, you can invest in the S&P 500 through both ETFs and mutual funds that track its performance. The most popular option is the S&P 500 ETF, such as the SPDR S&P 500 ETF Trust (ticker: SPY), which is a low-cost, passive investment vehicle that replicates the index. Mutual funds that follow the S&P 500 also exist, but they usually come with higher fees and less trading flexibility.