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30 September 2026

Please note: This is general educational information, not personal investment advice. Investments can fall in value as well as rise, and you may get back less than you invest.

With hundreds or even thousands of investment options available, choosing the right one can feel complicated. In this article, we compare two popular options: traditional investment funds and exchange-traded funds (ETFs).

Before looking at their differences, it’s helpful to understand what each is and how they work.

An investment fund brings money from many investors together and uses it to buy a mix of assets. These can include things such as single company shares, government bonds, commodities (e.g. gold), and cash instruments.

A team of investment specialists manage the fund with the aim of generating returns for the investors. Each fund has its own investment plan, risks and costs, and, depending on the performance of the assets it holds, the value of the fund can rise or fall.

Each fund can have a different focus. Some will invest in specific sectors, such as artificial intelligence or biotechnology, others in a particular region (e.g. Global, US or Asia-Pacific), or will aim to track a particular index, such as the FTSE 100.

The focus of each fund is reflected in its name, and some examples might include:

FTSE All-Share Fund - invests in shares of companies listed in the UK.

Global Technology Fund - invests in technology companies from around the world.

Global Income Fund - invests in assets that aim to provide regular income.

Introduced in the early 1990s, ETFs were designed to give investors a simple and flexible way to access financial markets.

They share many similarities with traditional investment funds: ETFs pool money from investors to buy a range of assets, are managed according to a set investment plan, and have their own risks and costs.  

The main difference is how they’re bought and sold. ETFs are listed on a stock exchange and can be traded during market hours, in a similar way to company shares.

ETFs are often cheaper to buy and hold than traditional funds, but costs vary. Investors should also consider trading fees, platform fees and the difference between the buying and selling prices when choosing how they invest.

There’s no single best choice between an investment fund or an ETF, and which one an investor chooses depends on their individual needs, investment intentions, and the level of risk they are comfortable with. A well-chosen investment approach should support a clear investment objective, rather than simply following the latest market trend.

ETFs may have lower ongoing charges than some traditional investment funds, but this isn’t always the case, so investors should compare all relevant costs before investing. ETFs may also appeal if an investor wants a broad way to track an index or wishes to buy or sell during market hours.

A traditional investment fund may appeal if an investor wants access to certain actively managed funds or fund managers and doesn’t need to trade during market hours.

In either case, it is important to read all of the product information as the label alone doesn’t determine whether an investment is suitable for you. A low-cost ETF may still be unsuitable if it focuses on a risky sector. Equally, a traditional fund may be well diversified and suitable for a long-term investment goal.

While investment funds and ETFs both provide a way to invest in a diversified portfolio through a single product, understanding the differences in price, liquidity (how easily an asset can be converted into cash), and how they’re bought and sold is key.

For many investors, the decision between the two comes down to practical factors such as trading flexibility, regular investment features, costs, product availability and personal preferences.