Mutual funds vs. index funds: What’s the difference?

Mutual funds and traditional index funds aren’t available via Crypto.com Stocks. However, we do offer thousands of single-name stocks and Exchange-Traded Funds (ETFs) from 0% commission. The information in this article is for educational purposes only.

What are mutual funds? 

Mutual funds are investment vehicles that pool money from many investors to buy a diversified portfolio of assets. These assets can include stocks, bonds or other securities. Mutual funds are typically actively managed, meaning professional portfolio managers select and adjust holdings based on their own analysis, market outlook and investment strategy.

One defining characteristic of mutual funds is that they are priced once per day. All buy and sell orders are executed after the market closes, at the fund’s updated net asset value (NAV). This structure enables investors to participate in a professionally managed portfolio without needing to handle individual securities.

Mutual funds often come with various fees. According to the latest data from the Investment Company Institute (ICI), the asset-weighted average expense ratio for US equity mutual funds declined to 0.4% in 2024,¹ continuing a long-running trend toward lower costs as competition and efficiency increase. Historically, these fees were much higher, averaging 1.04% in 1996.¹

Some mutual funds may also charge sales fees, commonly known as loads, or distribution charges that impact overall costs.

Because mutual funds can hold a wide range of different assets and include professional oversight, they’re widely used in employer retirement plans and long-term investment accounts.

Note: Mutual funds are not offered via Crypto.com Stocks.

What are index funds? 

Index funds are pooled investment funds designed to track a specific market index. Instead of having managers select individual securities, index funds follow a rules-based, passive strategy. For example, if a fund tracks a broad stock market index, it will aim to mirror that index’s composition and performance.

Like mutual funds, index funds price their shares once per day based on NAV. However, because they follow a preset index rather than relying on constant decision-making by managers, their operating costs tend to be lower.

Index funds are often used by investors who want an accessible way to follow the performance of broader markets or specific segments. Their cost-efficient structure, emphasis on long-term market trends and minimal turnover contribute to their widespread adoption in retirement accounts and long-term saving strategies.

What are Exchange-Traded Funds (ETFs)?

Exchange-Traded Funds are investment funds that hold a collection of assets such as stocks, bonds, commodities or a mix of these. Rather than buying shares in a single company, an ETF enables you to invest in a diversified portfolio through one trade.

ETFs are traded on stock exchanges in the same way as individual stocks. Each ETF is designed with a specific objective, such as tracking a market index, focusing on a particular sector or following a theme. When you buy an ETF, you gain exposure to all the underlying assets held within that fund.

Unlike mutual funds and index funds, ETFs can typically be bought and sold throughout the trading day, at market prices, rather than being priced once per day.

Investing in funds with Crypto.com Stocks

Although Crypto.com Stocks doesn’t offer mutual funds or traditional stock index funds, users have access to 12,000+ US stocks and ETFs, all available to trade at 0% commission.* Through the ‘Trade’ tab, you can explore a wide range of exchange-listed assets, monitor real-time pricing and place orders easily from any device. 

For those looking to build knowledge as they invest, the Stocks Learn Hub provides clear, beginner-friendly educational content and insights on market concepts and investing themes.

Key differences between mutual and index funds

While mutual funds and index funds share a similar pooled-investment structure, they differ in several important ways.

1. Management style

Mutual funds are usually actively managed, with investment decisions made by professional managers. This can lead to more trading activity, changes in portfolio composition and higher operating costs.

Index funds use passive management, following an index automatically without frequent trading or decision-based adjustments.

2. Fees and expenses

Active management typically results in higher costs for mutual funds. These may include:

• Expense ratios
• Sales loads
• Administrative or distribution fees

Index funds generally feature lower expense ratios due to their rules-based structure and lower turnover. 

3. Investment objectives

Mutual funds often aim to outperform a benchmark, though this objective depends on the fund’s strategy. Index funds aim to match the performance of an index rather than exceed it. This difference leads to varying expectations around performance variability and trading activity.

4. Risks and potential rewards

Both fund types carry market risk, since their values depend on the performance of their underlying assets. Mutual funds can experience greater performance variability due to active decision-making and market timing.

Index funds generally move in line with the broader market or index they track, which could offer more predictable performance patterns over long periods but doesn’t guarantee outperformance.

Pros and cons of mutual funds and index funds

Pros of mutual funds

• Professional portfolio management.
• Accessible through many retirement and employer plans.
• Can target specific strategies or asset types.

Cons of mutual funds

• Typically higher fees due to active management.
• May charge additional sales or distribution fees.
• Trades only once daily at NAV.
• Performance can vary significantly depending on the manager.

Pros of index funds

• Lower fees due to passive management.
• Transparent, rules-based structure.
• Stable long-term performance patterns that follow the underlying index.
• Generally low portfolio turnover.

Cons of index funds

• Can’t outperform the index they track.
• Still subject to market risk.
• Less flexible during rapidly changing market conditions.
• Trades only once daily, like mutual funds.

¹ CIC, 2025

* Other fees may apply. 

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