ETF vs. Fund: How Do They Differ
Even when tracking the same S&P 500, there is a difference between buying it as an ETF or as an index fund. What is different?
The Structural Difference Between ETFs and Regular Funds
ETF (Exchange-Traded Fund): - Can be traded in real time on an exchange like a stock - Can be bought and sold at market price all day long - Minimum investment: the price of 1 share (usually a few dollars to a few tens of dollars) - Price is set by supply and demand in the market (may differ slightly from NAV)
Regular fund (public offering fund / mutual fund): - Can only be traded once a day at the reference price (NAV) - Same-day buy order → the reference price of the next day or the day after applies - Minimum investment: varies by product (from about $7 to about $740, etc.) - Price is always the exact NAV
Cost and Tax Comparison
Cost: ETF total expense ratio (TER): 0.03–0.5% (very low for index ETFs) Active public offering fund: 1–2%+ (management, distribution, and custody fees combined) Index public offering fund: 0.1–0.5%
Tax (Korean basis): ETF distributions: 15.4% dividend income tax Gains from selling domestic-listed ETFs: varies by product type Foreign-listed ETFs: 22% after a 2.5 million KRW deduction, on capital gains Gains from redeeming a regular public offering fund: 15.4% dividend income tax (on the profit portion)
Because tax treatment differs by product, always check the individual product's terms or consult a tax accountant.
Tax law changes frequently. This content is for educational purposes and may differ from the latest tax law.
Which Should You Choose
When an ETF is advantageous: - Long-term, low-cost investing - When you want to track a specific index precisely - When starting with a small amount - When liquidity matters (you can sell anytime)
When a regular fund is advantageous: - Special strategies that have no ETF (some bond types, alternative investments) - When automatically contributing a fixed amount each month (auto-transfer is convenient for public offering funds) - When you want to buy at the exact NAV without price fluctuation - Small recurring investments (ETFs are constrained to whole shares)
For long-term index investing, ETFs are often advantageous on the cost side.
Preguntas frecuentes
Q. Do domestic ETFs like KODEX or TIGER work on the same principle?
Yes. ETFs from domestic managers such as KODEX (Samsung Asset Management) and TIGER (Mirae Asset) have the same ETF structure. They are listed on the domestic stock market (KRX) and trade like stocks. Their structure is identical to foreign ETFs such as the U.S. VOO and SPY, but the tax treatment and currency-exchange process differ.
Q. Do ETFs always track an index?
No. Some ETFs are actively managed. The ARK Innovation ETF is a representative active ETF. Index ETFs that track an index are advantageous on cost, but not all ETFs use a passive strategy. It is more important to check the management strategy and cost than the ETF's name.
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