In fact, investors cannot purchase ETFs at the closing NAV. On one level, both mutual funds and ETFs do the same thing. Mutual fund investments had been growing steadily through the decades, but lately have experienced outflows. When buying ETF shares, you'd typically set your limit below the current market price (think "buy low").
As publicly traded securities, their shares can be purchased on margin and sold short, enabling the use of hedging strategies, and traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade.
Conversely, shares of mutual funds are traded directly with the fund company, so no brokerage account is necessary in order to buy and sell. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.
Capital gains taxes only apply once the investor sells the ETF. Mutual funds accumulate a pool of money that is then invested to pursue the objectives stated in the fund's prospectus. In fact, you can easily create a fully diversified portfolio with only three mutual funds or ETFs, using solely one or the other.
Both ETFs and index mutual funds are more tax efficient than actively managed funds. Mutual funds, on the other hand, are not listed on stock exchanges and can be bought and sold through a variety of other channels — including financial advisors, brokerage firms, and directly from fund companies.
Other investors purchase and sell ETF shares in market transactions at market prices. Additionally, active management with a specific strategy may complement index funds in a portfolio. Both offer shares in a pool of investments designed to pursue a specific investment goal.
ETFs available commission-free that participate in the ETF Market Center may be subject to a holding period that commences with any purchase and extends through the following THIRTY (30) calendar days. As you can see, index ETFs and index mutual funds have grown significantly.
When constructing an investment portfolio, you'll probably include a variety of stocks and bonds among the securities you purchase. Because ETFs are traded on the exchange, there is always an ask price (buyers get this price) and a bid price (sellers get this price).
If you like the idea of passive investing—leaving an investment alone for a long time—then an index mutual fund (a fund made up of stocks within a particular market index) will allow you to "invest in" an index (or the companies within an index) without paying the common brokerage fees of an etf investing ETF.
Just like an individual stock, the price of an ETF can change from minute to minute throughout any trading day. However, significant shifts tend to be short-lived due to the transparency in an ETF's portfolio and the ability of APs to create or redeem ETF shares at the NAV at the end of each trading day.