At this point, it is natural to ask: if both ETFs and global mutual funds give exposure to a portfolio of companies and do not need to pick stocks, then what exactly makes them different?

The answer lies in how the portfolio is built and managed.

Difference #1: How companies are selected

Most ETFs follow a rules-based approach. They are designed to track a specific index. 

For example, an ETF tracking the S&P 500 simply holds the companies that are part of that index. When the composition of the index changes, the ETF automatically adjusts its holdings.

A global mutual fund works differently. 

Here, a portfolio manager and their investment team actively decide which companies to include in the portfolio. They study industries, evaluate businesses, and make investment decisions based on their research.

In simple terms, an ETF follows a defined index, while a global fund relies on active stock selection by the fund manager.

Difference #2: How these investments trade

ETFs trade on stock exchanges throughout the day. Investors can buy or sell them at live market prices during trading hours, in the same way they would trade individual stocks.

Global mutual funds are priced differently. They are valued once at the end of the day, based on the net asset value (NAV) of the underlying portfolio. Investors buy or redeem units at that daily price rather than trading continuously.

Difference #3: cost

Because ETFs simply track an index and do not require active stock selection, their expense ratios are typically quite low. Many broad market ETFs charge only a small fraction of a% each year.

Global mutual funds usually have higher costs, as they involve a professional investment team researching companies, constructing the portfolio, and adjusting it over time.

Now, some investors prefer ETFs because they offer transparent, low-cost exposure to broad markets. Others prefer global funds, especially when they want an experienced manager to actively select companies within a particular region, sector, or theme.

The comparison below captures the key differences: