Generally, both ETFs and mutual funds are managed by fund managers and are diversified across many different securities. Many of these funds are designed to track the performance of a major market benchmark or index. Some, but not all, mutual funds are actively managed, meaning they are managed with the expectation of beating the performance of an index. Such mutual funds tend to be much more expensive than ETFs. Also, ETFs are traded throughout the day like individual stocks, while mutual funds only trade once at the end of the day.
Mutual funds offer a high level of diversification and liquidity but may create more tax consequences for investors. They may distribute capital gains even if you haven’t sold any shares, potentially creating unintended tax consequences. In contrast, investors of ETFs decide when to sell their shares and take capital gain distributions, providing ETF investors with more control of when taxable events occur. This allows investors to minimize and control the timing of their tax liability. This control may make ETFs more ‘tax efficient’ than mutual funds.
While mutual funds may be less tax efficient, we've included two in our Ellevest Digital and Premium Impact Portfolios that are designed to offer competitive market returns and power positive social change: Pax-Ellevate Global Women's Leadership Fund and the Access Capital Community Investment Fund. These strategies are not currently offered as ETFs.