On 17 December 2025, The Growth Fund of America paid its investors a capital gain of $8.364 a share. A capital gain is the profit a fund makes when it sells holdings for more than it paid. In an ordinary taxed US account, that payout was taxable in 2025, even for investors who sold nothing.
That fund is a mutual fund. It pools investors' money and deals with them once a day. Exchange-traded funds (ETFs) trade on a stock exchange all day. They make such payouts far less often. In 2025, 52% of US mutual funds paid out a capital gain. Only 7% of US ETFs did. The figures are Morningstar data, published by State Street. Here is how the two compare on fees, tax and trading.
Mutual fund vs ETF: what is the difference? Both pool many investors' money into one portfolio. A mutual fund deals with investors once a day at its closing value, while an exchange-traded fund (ETF) trades on a stock exchange all day.
Fees depend more on how a fund is run than on its type. In 2025, mutual funds where a manager picks the shares charged an average of 0.64% a year, against 0.40% for ETFs run the same way. Index mutual funds charged 0.05%, against 0.14% for index ETFs.
In 2025, 52% of US mutual funds paid out a capital gain, which is taxable in an ordinary taxed account. Only 7% of US ETFs did.
A mutual fund order fills at that day's closing price. An ETF order fills at the market price during the day, with a small cost to cross the gap between buying and selling prices.
Mutual funds and ETFs: what each one is
A fund's type is often called its wrapper: the legal structure that holds the investments.
Mutual fund. A pool of money run by a fund company. You buy shares from the fund and sell them back to it. It prices them once a day, after the market closes. That price is the net asset value (NAV): the value of the holdings, minus what the fund owes, per share.
ETF. Also a pool, but its shares trade on a stock exchange through the day, as What Is an ETF? explains.
OEIC. In the UK, the everyday mutual fund is an open-ended investment company (OEIC) or a unit trust. Both are priced once a day, according to the fund manager Artemis. So "ETF vs OEIC" is the UK version of this comparison.
Each wrapper comes in two styles. An actively managed fund has a manager who picks the holdings. An index fund copies a market index. Index Funds vs ETFs compares one Vanguard fund sold in both wrappers.
Mutual funds vs ETFs: where the money has gone since 2010
Source: Investment Company Institute; YX Insights
Chart 1 shows net flows, money put in minus money taken out, from the Investment Company Institute (ICI), the US fund industry body. US long-term mutual funds, which hold shares, bonds or both, have had net outflows every year since 2018. In 2025, $1.22 trillion left them, the largest outflow in ICI records going back to 1984. ETFs took in a record $1.47 trillion.
Mutual funds still hold more: $23.6 trillion at the end of 2025, against $13.4 trillion in ETFs.
Fees: the cost layers in each fund type
A mutual fund can sell several versions of its shares, called share classes. Each has its own fees and minimum. Costs come in layers:
Expense ratio. The yearly fee, taken from the fund's assets.
Sales charge. Some share classes take a one-off fee when you buy, also called a load.
Trading costs. Each ETF trade crosses the bid-ask spread, covered under Trading below.
The table shows these layers for four named funds, from their providers' own pages.
Product | Wrapper | Yearly fee | Other costs | Minimum to start |
|---|---|---|---|---|
The Growth Fund of America, Class A (AGTHX) | Active mutual fund | 0.59% | Sales charge of up to 5.75% | $250 |
Vanguard 500 Index Fund Admiral Shares (VFIAX) | Index mutual fund | 0.04% | No sales charge | $3,000 |
Capital Group Growth ETF (CGGR) | Active ETF | 0.39% | Bid-ask spread | One share: $47.43 on 30 September 2026 |
Vanguard S&P 500 ETF (VOO) | Index ETF | 0.03% | Bid-ask spread | One share: $707.54 on 2 October 2026, or $1 at Vanguard |
Source: Capital Group and Vanguard fund pages, checked 6 October 2026
In 2025, actively managed funds holding company shares charged an average of 0.64% a year as mutual funds, against 0.40% as ETFs, according to the ICI. Index mutual funds charged 0.05%, against 0.14% for index ETFs.
The ICI gives two reasons index mutual funds cost less. They are bigger, at $14.6 billion on average in 2025, against $6.2 billion for index ETFs. More of their money also sits in broad US stock funds, the cheapest kind: 83%, against 69% for index ETFs.
Tax: why mutual funds pay out more capital gains
US funds pay out nearly all their realised gains each year as a capital gains distribution, according to the ICI. The Internal Revenue Service (IRS) taxes it as a long-term capital gain, however long you have held the fund. Long-term gains are taxed at up to 20%, according to the ICI. The tax is due in the year of the payout, even if you sold nothing.
The gap comes from how investors leave. When a mutual fund investor sells, the fund must pay out cash, so it may sell holdings. Any gain passes to the investors who stay, State Street explains. Most ETF trading is between investors on the exchange: 88% of ETF activity in 2025, according to the ICI. Those trades leave the fund's holdings untouched. When an ETF does shrink, it hands shares to authorised participants, the large dealers who create and cancel ETF shares. Handing over shares is not a sale, so no gain is realised inside the fund.
Source: Morningstar, published by State Street Global Advisors; YX Insights
Chart 2 shows the share of US funds that paid out a capital gain each year. The data come from Morningstar, as published by State Street, an ETF provider. From 2016 to 2025, an average of 53% of mutual funds paid one each year, against 9% of ETFs.
The gap holds for index funds too, though Chart 2 does not split them out. In 2025, 41% of index mutual funds paid out a capital gain. Only 4% of index ETFs did.
Trading: once a day or all day
A mutual fund order fills at the next NAV, worked out after the close. You learn the price only after you order. An ETF order fills at the market price, at any time the exchange is open.
Buyers pay the higher ask price, while sellers get the lower bid price. The gap is the bid-ask spread. For a large ETF it is tiny: the median spread for SPY (the S&P 500 ETF) over 30 days was below 0.005% on 1 October 2026. What Does a Market Maker Do? explains it.
Minimums differ too. The Growth Fund of America needs $250 to start, while Vanguard's S&P 500 index mutual fund needs $3,000. An ETF needs the price of one share, or $1 where the platform sells fractions.
A real example: The Growth Fund of America's payouts
The Growth Fund of America is an actively managed mutual fund run by Capital Group, with $353.1 billion on 31 August 2026.
Source: Capital Group; YX Insights
Chart 3 shows the capital gains its Class A shares paid each December. It paid one every year from 2013 to 2025. The 2025 payout of $8.364 a share was more than 1/10 of the $78.29 share price straight after it. It paid none from 2008 to 2012, during and after the 2008 crash, because a fund pays out gains only when they exceed its losses, according to the ICI.
Mutual fund or ETF: what to check
A few checks help:
The account. Inside an Individual Savings Account (ISA), an Individual Retirement Account (IRA) or a 401(k) workplace plan, capital gains payouts are not taxed as they arrive. The tax gap matters most in an ordinary taxed account.
Every cost layer. Add any sales charge and the spread to the expense ratio.
A third option. A separately managed account (SMA) holds the shares in your own name, so no other investor's selling can trigger a payout for you. Schwab Personalized Indexing, one SMA, needs $100,000 to start and charges 0.40% a year on the first $2 million.
A mutual fund and an ETF can hold the same shares. The ETF trades all day, while the mutual fund deals once a day. Fees depend more on active or index management than on the fund type. In an ordinary taxed US account, the ETF is far less likely to hand you a capital gains tax bill.
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