What is the key difference between an ETF and a mutual fund?

• A. ETFs are only available to institutional investors.
• B. ETFs trade on an exchange like a stock and typically have lower ongoing costs and intraday pricing; mutual funds price once per day.
• C. ETFs are always actively managed.
• D. Mutual funds trade on an exchange like a stock.

Answer: (B)

The main idea here is how ETFs differ from mutual funds in trading and pricing. ETFs trade on an exchange like stocks, so you can buy or sell them throughout the day at market prices that change intraday. They typically have lower ongoing costs, especially for broad-market indices, and you also encounter bid-ask spreads when you trade. In contrast, mutual funds are bought or sold at the end of the trading day at the net asset value calculated then, so you don’t see intraday price moves and your order is executed at one daily price. This distinction affects flexibility, pricing visibility, and costs. The other options don’t fit because ETFs aren’t limited to institutions, many are not actively managed, and mutual funds are not traded on an exchange.