Which statement best describes ETF versus traditional mutual funds in terms of fees and trading?

• A. ETFs require minimum investments higher than mutual funds
• B. ETFs have higher fees and are only active managed
• C. Mutual funds trade on exchanges; ETFs do not track assets
• D. ETFs typically have lower fees and offer intraday trading, while mutual funds trade at end-of-day prices; both track assets

Answer: (D)

The difference being tested is how trading mechanics and costs differ between ETFs and traditional mutual funds. ETFs trade on an exchange like stocks, so you can buy or sell during the trading day at market prices, with liquidity coming from the market price and the bid-ask spread. This intraday trading capability is paired with typically lower overall expense ratios, especially for passive ETFs, and the potential for lower ongoing fees. Mutual funds, on the other hand, are bought and sold at the fund’s end-of-day net asset value, so you don’t see intraday pricing and you trade once per day at the calculated NAV. They can carry higher fees—due to management costs, potential loads, or 12b-1 fees—though there are no-load options as well. Both types hold underlying assets to meet their investment objectives, but ETFs generally combine lower fees with intraday trading, while mutual funds settle only at the end of the day.