Home › Invest › ETFs & index funds
An index fund is a fund that tries to match a market index, like the S&P 500, instead of picking investments. It can be a mutual fund or an ETF (exchange-traded fund); those are just two ways to package a fund (Investor.gov). What you pay every year is the expense ratio, and small differences add up: this page explains ETFs vs mutual funds vs index funds in plain English, shows where fees hide, and lets you see what a fee costs you in dollars.
Checked Oct. 25, 2026
Runs on your phone; nothing you type is sent anywhere. Enter two funds' yearly fees (the expense ratio from the prospectus, or an adviser's fee plus the fund's). Same return for both.
Defaults: 0.05% and 0.64% are the 2025 asset-weighted averages for index and actively managed stock mutual funds (ICI). The 6% return is only an example, not a forecast.
Example with the defaults: $10,000 plus $6,000 a year for 30 years at 6% ends at about $554,475 with a 0.05% fee and $491,160 with 0.64%, a difference of about $63,315.
Check: the SEC's $100,000 at 4% for 20 years comes out at $208,413 (0.25% fee), $198,211 (0.50%) and $179,213 (1%) here; the SEC rounds to about $208,000, $198,000 and $179,000.
“Index fund” describes the strategy (follow an index). “ETF” and “mutual fund” describe the wrapper (how you buy and sell). So an S&P 500 index fund can be an ETF or a mutual fund, and an ETF can be actively managed.
| Mutual fund | ETF | |
|---|---|---|
| How you buy and sell | From the fund itself or through a broker or adviser; you sell shares back to the fund | Only on a stock exchange, through a brokerage account (retail investors can't buy from or sell to the fund) (SEC) |
| Price you get | Net asset value (NAV), figured at the end of the business day; you don't know the exact price when you order | Market price during the trading day; can be a little above (premium) or below (discount) NAV |
| Yearly expense ratio | Yes, taken from fund assets; may include a 12b-1 fee | Yes, taken from fund assets; 12b-1 fees are typical of mutual funds, not ETFs |
| Fees charged to you directly | Some charge sales loads, redemption, exchange, purchase or account fees | Uncommon; but you may pay a broker commission each trade (SEC) |
| Minimum to start | Set by the fund; some set relatively low amounts | Shares can often be bought on the market for relatively low dollar amounts |
| Capital gain distributions (taxable account) | Generally taxable to you each year they're paid | Also taxable, but many ETFs pay fewer because they trade holdings in-kind |
| In a 401(k) or IRA | No tax difference between the two (SEC) | |
| Insured? | Neither is FDIC-insured or guaranteed; you can lose money (Investor.gov) | |
Exchange-traded notes and exchange-traded commodity funds can trade like ETFs but aren't registered under the Investment Company Act, so the SEC's mutual fund and ETF rules described here may not apply; check the prospectus, not the name.
Every mutual fund and ETF prospectus has a standard fee table near the front (SEC). Two parts:
| Fee | What it is | Limits / notes |
|---|---|---|
| Expense ratio (Total Annual Fund Operating Expenses) | Management fee + 12b-1 fee + other expenses, as a % of fund assets each year. Taken from the fund, so it lowers every shareholder's return | Paid whether the fund gains or loses |
| 12b-1 (distribution and/or service) fee | Pays for marketing, selling and shareholder service; part of the expense ratio. Typical of mutual funds, not ETFs | FINRA caps the sales part at 0.75% a year and service fees at 0.25% a year (Rule 2341(d)) |
| Front-end sales load | Taken from what you invest, paid to the selling broker. SEC example: $10,000 with a 5% load = $500 load, $9,500 invested | Total sales charges capped at 8.5% of the offering price (funds with no asset-based sales charge; Rule 2341). Discounts (“breakpoints”) for bigger purchases |
| Back-end / deferred load (CDSC) | Charged when you sell; often shrinks the longer you hold. SEC example (5%): $10,000 grows to $12,000 → $500 load; falls to $8,000 → $400 load | Funds with a CDSC typically also charge a yearly 12b-1 fee |
| Redemption, exchange, purchase and account fees | Charged to you for selling, switching funds in the same family, buying, or keeping a small account (for example, under $10,000) | A “no-load” fund can still charge these |
Not in the fee table or expense ratio: broker commissions on ETF trades, an ETF's premium or discount to NAV, an adviser's or wrap-account fee, and the fund's own trading and securities-lending costs. A fund advertised as zero-expense may still cost you through those (SEC). Share classes (A, C, I and so on) of the same fund have different loads and expense ratios, so check yours.
“No-load” may only be used for a fund with no front-end or deferred sales charge and sales plus service fees of 0.25% a year or less (FINRA Rule 2341(d)(4)).
Asset-weighted average expense ratios (what the average dollar paid), from the Investment Company Institute (published March 25, 2026, using 2025 data):
| Fund type | Average yearly expense ratio |
|---|---|
| Index stock (equity) mutual funds | 0.05% |
| Index stock (equity) ETFs | 0.14% |
| Index bond mutual funds | 0.05% |
| Index bond ETFs | 0.09% |
| All stock (equity) mutual funds | 0.40% |
| Actively managed stock mutual funds | 0.64% |
| All bond mutual funds | 0.36% |
| Target date mutual funds | 0.27% |
| Money market funds | 0.24% |
Simple (unweighted) averages are much higher: the simple average index stock ETF charged 0.45% and the simple average stock mutual fund 1.08% (ICI). 92% of 2025 long-term mutual fund gross sales went to no-load funds without 12b-1 fees. ETFs held $13.4 trillion at year-end 2025, 89% of it in index ETFs. On $10,000, each 0.10% is $10 a year.
Facts, not investment advice. We republish SEC, FINRA, ICI and IRS information with dates and do the arithmetic. We don't recommend any fund or name fund tickers. No partner links on this page.
A mutual fund, ETF or unit investment trust that tries to match the return of a market index (such as the S&P 500) before fees, by holding the stocks or bonds in that index or a sample of them. The SEC says this usually means less trading, fewer taxable gains and lower fees than actively managed funds, but not every index fund is cheap.
You buy mutual fund shares from the fund (or through a broker) at the price set at the end of the business day. You buy and sell ETF shares on a stock exchange through a brokerage account at the market price during the day, which can be a little above or below the fund's value. Both charge an expense ratio. ETFs typically pay out fewer capital gains, which matters only in a taxable account.
The fund's total yearly operating expenses (management fee, any 12b-1 fee and other expenses) as a percent of its assets. It is taken out of the fund, not billed to you, so you see it as a lower return. It is the 'Total Annual Fund Operating Expenses' line in the prospectus fee table.
The SEC's example: $100,000 growing 4% a year for 20 years ends at about $208,000 with a 0.25% yearly fee, $198,000 with 0.50% and $179,000 with 1%. The calculator on this page runs the same math with your numbers.
In 2025, the average investor (asset-weighted) paid 0.05% in index stock mutual funds, 0.14% in index stock ETFs, 0.64% in actively managed stock mutual funds and 0.40% across all stock mutual funds (Investment Company Institute, March 2026). The simple average index stock ETF charged 0.45%, so fees vary a lot.
No. No-load means no sales charge, and under FINRA Rule 2341 a fund can be called no-load only if its 12b-1 and service fees total 0.25% a year or less. It still has an expense ratio and may charge purchase, redemption, exchange or account fees.
In a taxable account, many ETFs pay fewer capital gains distributions because they trade holdings in-kind, so they often cause less tax. Inside a 401(k) or IRA there is no tax difference (SEC). Capital gain distributions are taxed as long-term gains no matter how long you owned the fund (IRS Pub. 550).
Estimates, not financial advice. Taxes, insurance, PMI and fees vary by lender, county and city; confirm with your lender, dealer and state agency before acting.