Index funds vs ETFs – what investors need to know? | Hargreaves Lansdown (2024)

Investment ideas

We look at some of the key differences between index funds and exchange traded funds (ETFs).

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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6th April 2023

Index funds vs ETFs – what investors need to know? | Hargreaves Lansdown (2024)


Index funds vs ETFs – what investors need to know? | Hargreaves Lansdown? ›

Index funds only value and trade once a day, usually at midday. Unlike ETFs, investors won't know exactly what price they're buying or selling for until after the trade's taken place. ETFs on the other hand are funds traded on a stock exchange, like shares, and are a type of Exchange Traded Product.

Should you invest in ETFs or index funds? ›

There are typically no shareholder transaction costs for mutual funds. Costs such as taxation and management fees, however, are lower for ETFs. 2 Most passive retail investors choose index mutual funds over ETFs based on cost comparisons between the two. Passive institutional investors tend to prefer ETFs.

What investors should know about mutual funds vs ETFs? ›

Quick Reference Comparison
ETFsMutual Funds
PricingDetermined by marketNet asset value (NAV)
Tax EfficiencyUsually tax efficient due to less turnover and fewer capital gainsNot as tax efficient due to more turnover and greater capital gains
Automatic InvestingNot availableYes, for investments and withdrawals
9 more rows

What is the difference between ETF and fund Hargreaves Lansdown? ›

Mutual funds are also typically single priced, meaning the buy and sell price is the same. Whereas ETFs have different buy and sell prices, known as the ask and bid respectively.

Does Hargreaves Lansdown charge for ETFs? ›

Dealing fees are paid whenever you place a trade in other investments with HL. These include shares, investment trusts, exchange-traded funds (ETFs), gilts and bonds.

Why would you choose an index fund over an ETF? ›

ETFs and mutual funds that track an index typically have lower management fees than actively managed ETFs or mutual funds. A mutual fund is priced once a day and all transactions are executed at that price, while the price of an ETF fluctuates throughout the day as it is bought and sold through an exchange.

Should I invest in ETF or S&P 500? ›

Key Takeaways. Dividend ETFs invest in high-yielding dividend stocks to maintain a stable, steady income. The S&P 500 is a broad-based index of large U.S. stocks, providing growth and diversification. The best choice for you will depend on whether you prefer income or growth from your investments.

Why not to invest in ETFs? ›

Market risk

The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.

Should I invest in Vfiax or VOO? ›

VFIAX does not pay capital gains like typical mutual funds. Vanguard account holders who prefer a more active investing role may choose VOO. Returns, fees, and holdings are virtually identical. The difference is how you buy and sell an ETF vs how you buy and sell a mutual fund.

Is VOO or VTI better? ›

Both have the same expense ratio and similar dividend yield, so you should choose whichever one you prefer based on the fund's strategy. If you only want to own the biggest and safest companies, choose VOO. If you want broader exposure and more diversification, choose VTI.

Why do people use Hargreaves Lansdown? ›

We make it easy for people to save and invest for a better future. Our purpose is simple. We make it easy for people to save and invest for a better future. We support over 1.8m clients in building their financial resilience and achieving their financial goals.

Is it worth using Hargreaves Lansdown? ›

Is Hargreaves Lansdown any good? Hargreaves Lansdown is a great option for both new and sophisticated investors. Its aim is to simplify investments for anyone, and the company was among the first to offer DIY investments to Britons without the need for a financial adviser.

Which is better Vanguard or Hargreaves Lansdown? ›

While Vanguard is the cheaper option, HL offers a wider service and may be worth the higher fees for some investors who want more guidance and investment choices. It depends on your preferences and philosophy towards active and passive investing.

Is there a downside to investing in ETFs? ›

Underlying Fluctuations and Risks

ETFs, like mutual funds, are often lauded for the diversification that they offer investors. However, it is important to note that just because an ETF contains more than one underlying position doesn't mean that it is immune to volatility.

Which is better Vanguard S&P 500 index fund or ETF? ›

Both VFIAX, a mutual fund, and SPY, an ETF, seek to track the S&P 500. The SPY ETF may have a slight tax advantage over the VFIAX mutual fund since it's not actively managed, meaning there's less buying and selling of trades. VFIAX and SPY are generally considered strong investments, especially for passive investors.

Are ETFs better than index funds for taxes? ›

Because index funds buy and sell stocks so infrequently, they rarely trigger capital gains taxes for investors. When it comes to tax efficiency, ETFs have the edge. Unlike index funds, ETFs rarely buy or sell stock for cash.

Should I just put my money in ETF? ›

If you're looking for an easy solution to investing, ETFs can be an excellent choice. ETFs typically offer a diversified allocation to whatever you're investing in (stocks, bonds or both). You want to beat most investors, even the pros, with little effort.

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