Are ETFs actually better than mutual funds?

When I started investing, I bought mutual funds. Tangerine had a set of index-tracking funds you could buy with no trading commissions, no minimum trade size, and automatic contributions from your bank account. I set it up once and forgot about it. Money moved from my chequing account into the fund every two weeks without me doing anything.

A year or so later, I started reading investing forums. The message was loud and unanimous: ETFs are better. Lower fees. More transparent. More control. The way serious investors do it. Mutual funds are for people who don’t know any better.

So I switched. And the switch was fine. But looking back, I’m not sure the mutual funds were the problem everyone made them out to be. The real issue was never the vehicle. It was what was inside it and what it cost.

What this comparison is usually about

When someone says “ETFs are better than mutual funds,” they almost always mean one specific comparison: low-cost index ETFs versus high-fee actively managed mutual funds sold by banks.

And in that comparison, yes, the ETF wins. It’s not close. A broad index ETF like XEQT charges around 0.20% per year. A typical Canadian bank mutual fund charges 1.5% to 2.5%. Those numbers look similar at a glance, but on a $100,000 portfolio, that’s the difference between paying $200 and paying $2,000. Every single year. Over decades, the compounding effect of that fee gap is enormous.

But that’s not a fair comparison between the two vehicles. That’s a comparison between a cheap product and an expensive one. The wrapper isn’t the problem. The cost is.

What ETFs and mutual funds actually are

Both ETFs and mutual funds are pools of investments. You give your money to a fund, the fund buys a bunch of stocks or bonds, and you own a slice of the pool. The idea is the same.

The main differences are mechanical:

	ETF	Mutual fund
How you buy/sell	On a stock exchange, like a stock	Through the fund company or your brokerage, at end-of-day price
Pricing	Price changes throughout the day	Priced once per day after markets close
Minimum purchase	Usually one share (or fractional at some brokerages)	Often $25 to $500 for initial purchase, lower for ongoing
Automatic contributions	Not built in (some brokerages offer workarounds)	Built in at most providers
Trading cost	Commission-free at many brokerages	Usually no trading commission

None of these differences make one inherently better. They’re just different mechanics for doing the same thing.

Where ETFs genuinely win

There are real advantages to ETFs, and they’re worth knowing.

Lower fees on average. According to Morningstar’s 2025 Canada Fund Fee Study, the average Canadian mutual fund charges 1.33% and the average ETF charges 0.66%. Investors are noticing: Morningstar reports that passive funds captured 93% of net flows in Canada between 2015 and 2024. If you’re comparing the most popular options in each category, ETFs are cheaper almost every time.

More transparency. Most ETFs publish their full holdings daily. Mutual funds typically disclose holdings quarterly. If you want to know exactly what you own at any given moment, ETFs make that easier.

Tax efficiency in non-registered accounts. ETFs use a structure called in-kind creation and redemption that tends to generate fewer taxable capital gains distributions than mutual funds. If you’re investing in a non-registered account, this can matter.

No embedded advisor compensation. Most ETFs don’t pay trailing commissions to advisors. When you buy an ETF through a discount brokerage, there’s no middleman taking a cut. Many mutual funds, especially those sold through banks, include a trailing commission of 0.5% to 1.0% built into the MER. You’re paying for advice whether you’re getting it or not.

Where mutual funds hold their own

There are a few things I didn’t appreciate until I’d used both.

Automatic contributions with zero friction. This is the single biggest advantage of mutual funds for people building wealth from each paycheque. You set up an automatic contribution, say $200 every two weeks, and the money goes straight into the fund. No logging in, no placing a trade, no worrying about share prices or whether you have enough for a full share. It just happens.

With ETFs, automatic investing is possible at some brokerages (Wealthsimple offers it, for example), but it’s not universal and it wasn’t available at most platforms until recently. For years, if you wanted to invest in ETFs regularly, you had to log in, place a trade, and make sure you had enough cash for at least one share. That friction stopped a lot of people from investing consistently.

Low-cost index mutual funds exist. The comparison isn’t always “cheap ETF vs. expensive mutual fund.” Products like the TD e-Series index funds charge MERs of 0.25% to 0.50%. Tangerine’s index funds are around 0.65% to 0.70%. These aren’t as cheap as the cheapest ETFs, but they’re a fraction of what the big bank funds charge. And they come with the automatic contribution feature baked in.

If someone is investing $200 a month through automatic contributions into a TD e-Series index fund at 0.33%, and the alternative is an ETF at 0.20%, the fee difference on that portfolio is small. We’re talking about $13 per year on a $10,000 balance. That’s real money over decades, but it’s smaller than I expected when I first heard “ETFs are always better.”

They got me started. I would not have started investing when I did if mutual funds didn’t exist. The process of buying an ETF felt intimidating. I didn’t understand market orders, I didn’t know what a bid-ask spread was, and I definitely didn’t want to open a brokerage account. Tangerine let me set up automatic purchases from my bank account. I didn’t need to learn anything about trading. I just picked a fund and started.

That year of investing in mutual funds taught me more about how investing works, how it feels to watch your money grow, and what my own risk tolerance was, than any article or video ever could. By the time I switched to ETFs, I was ready. But if the only option had been ETFs from day one, I might have put it off for another year or two. And that delay would have cost me more than any fee difference.

The comparison that actually matters

Forget the vehicle. Focus on what’s inside.

A high-fee actively managed mutual fund that charges 2.2% and underperforms its benchmark? That’s a bad investment. Not because it’s a mutual fund, but because you’re paying a lot for poor results.

A low-cost index mutual fund that charges 0.33% and tracks the same index as a 0.20% ETF? That’s a reasonable investment, especially if the automatic contribution feature keeps you consistent.

A “smart beta” ETF that charges 0.75% and makes active bets while calling itself passive? That’s not automatically better than a mutual fund just because it trades on an exchange. I wrote about this in the not all ETFs are passive guide.

The hierarchy that actually matters looks more like this:

What you’re investing in	Typical cost	What you’re getting
Broad index ETF (XEQT, VFV, XIC)	0.03% to 0.25%	Low cost, market returns, full control
Low-cost index mutual fund (TD e-Series, Tangerine)	0.25% to 0.70%	Slightly higher cost, same market returns, easier automation
High-fee active mutual fund (big bank funds)	1.5% to 2.5%	High cost, usually underperforms, often includes embedded advisor fee
High-fee active ETF or complex strategy ETF	0.50% to 1.5%+	Higher cost, active bets, ETF label doesn’t make it cheap

The biggest jump is between the first two rows and the last two. Whether you’re in a cheap ETF or a cheap mutual fund matters far less than whether you’re in a cheap fund or an expensive one.

The real risk is not investing at all

Here’s what bothers me about the “just switch to ETFs” advice. It assumes the person is already investing. But a lot of people aren’t. They’re sitting on the sidelines because the whole thing feels complicated and intimidating. And telling them they need to open a brokerage account, learn about order types, and buy ETFs on a stock exchange is one more barrier between them and getting started.

If a mutual fund with automatic contributions gets someone investing today, that’s better than a theoretically cheaper ETF they never get around to buying. The best investment isn’t the one with the lowest MER. It’s the one you actually make.

Once you’re investing, once you’re comfortable, once you’ve seen your money grow and you understand the basics, then switching to ETFs makes sense for most people. The fee savings compound over time and the gap grows as your portfolio does. But that’s an optimization, not a prerequisite.

My own path

I started with Tangerine mutual funds. They got me in the door. A few years later, I moved to ETFs because the fee difference was becoming meaningful as my portfolio grew. I’ve been in ETFs ever since, and I don’t plan to go back.

But I’m grateful I started where I did. If someone told 22-year-old me that I needed to understand limit orders and bid-ask spreads before I could invest, I would have put it off. The mutual fund removed every excuse I had. And once my money was growing, the motivation to learn more came naturally.

If you’re already investing in low-cost mutual funds and wondering whether you should switch, the honest answer is: eventually, probably yes. The fee savings are real over long time horizons. But there’s no emergency. You’re not losing your shirt at 0.33% or even 0.65%. Make the switch when you’re ready, on your own timeline.

And if you’re not investing at all yet, pick whatever gets you started. A cheap mutual fund with automatic contributions is infinitely better than a cheap ETF you never buy.

Greenline tracks both ETFs and mutual funds across all your accounts. It doesn’t care what vehicle you use. It just shows you what you own, what it costs, and how it’s performing.