A mutual fund is when you decide to buy it, you gather your money with some other investors as well. You invest your money in a mutual fund through purchasing shares or units. If the number of people investing is higher, then the fund will be issuing new shares. Also, the investments of mutual funds are controlled by the portfolio manager. Whereas an index fund is also a kind of mutual fund but with the portfolio established to equalize or trace the essentials of the index of the financial market, for example, the Standard and Poor’s 500 Index, also known as S&P 500. It also provides huge exposure to market, lower expenses of operations, and a lower turnover of the portfolio. The mutual fund and index fund are different in these terms: the investment objective of a mutual fund is beating the return on investment of the related benchmark index whereas index fund equalizes the return on investment of the benchmark stock. The management style of an index fund is that it is more passive in a way that the investment mix is automatically matching with the benchmark index’s stated holdings whereas a mutual fund is active as the stock pickers that are fund managers and analysts choose their own fund holdings. The difference in their average management fee or expense ratio is 0.09% for index funds and 0.82% for mutual funds. Apart from that, the after-free return of an annual investment of $1,000 and earning around 7% on average annual return for more than 30 years is $99,000 for index funds and $86,000 for mutual funds. However, the vast difference between them according to the amount lost in fees in more than 30 years is $1,800 for the index funds and $15,000 for the mutual funds.

 

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