ETF vs managed fund: the differences that matter
Written by an ex-institutional trader. An ETF is a managed fund that happens to be listed. What that listing changes about price, cost, access and transparency, where active ETFs and listed investment companies fit, and a fee example that shows why the gap matters over 20 years.
Direct answer
An ETF is a type of managed fund. The difference is that ETF units trade on a stock exchange at live prices through a broker, while units in a traditional (unlisted) managed fund are bought and redeemed directly with the fund manager at a price set once a day. Both pool investors' money, both are regulated as managed investment schemes by ASIC, and both pass income and capital gains through to investors for tax.
In practice the labels have come to mean different things. "ETF" usually means a low-cost index tracker charging 0.03 to 0.30 percent a year. "Managed fund" usually means an actively managed portfolio charging 0.80 to 1.50 percent, sometimes with a performance fee and a minimum of AUD 5,000 to 25,000. ETFs win on cost, transparency, and ease of access. Unlisted managed funds still offer strategies that are hard to run in a listed format, and exact-dollar automated investing. Many active managers now offer the same fund both ways.
What they have in common
Strip away the marketing and an ETF and a managed fund are the same legal creature. Each is a trust, registered with ASIC as a managed investment scheme, run by a responsible entity that must hold an AFSL. Investors' money is pooled, an independent custodian holds the assets, and each investor owns units. Neither pays tax itself; income and realised gains flow through to unitholders, who receive an annual tax statement.
So when someone says "ETFs versus managed funds", what they are really comparing is listed versus unlisted, and, because of how the industry developed, usually passive versus active as well.
Disclosure: SatoshiMacro may earn a commission if you open an account through links on this page, at no extra cost to you. See our full affiliate disclosure.
Side by side
| Feature | ETF | Unlisted managed fund |
|---|---|---|
| How you invest | Share broker, on exchange | Application form, platform, or adviser |
| Price | Live, during market hours | Once daily, unknown when you apply |
| Typical annual fee | 0.03% to 0.30% (index); 0.5% to 1%+ (active) | 0.80% to 1.50%, sometimes plus performance fee |
| Entry and exit cost | Brokerage and bid-ask spread | Buy-sell spread |
| Minimum | One unit | Often AUD 5,000 to 25,000 direct |
| Holdings disclosure | Usually daily | Often top 10 only, monthly or quarterly |
| Time to cash | T+2 | Days to weeks; can be suspended |
| Typical style | Index tracking | Active stock selection |
Why the fee gap matters
A difference of 1 percent a year sounds trivial. Over a working lifetime it is one of the largest numbers in your financial life.
Take AUD 50,000 invested for 20 years in a portfolio earning 7 percent a year before fees. In an index ETF charging 0.10 percent, it grows to about AUD 189,900. In an active fund charging 1.10 percent, earning the same 7 percent before fees, it grows to about AUD 157,400. The fee difference costs roughly AUD 32,500, which is 65 percent of the original investment.
The active manager can justify that only by outperforming the index by more than 1 percent a year, after costs, for two decades. Some do. The evidence on how many is not encouraging: S&P's SPIVA Australia scorecards have found, year after year, that a large majority of actively managed Australian share funds trail their benchmark over 10 and 15 years. The managers are not foolish. The arithmetic is against them, because in aggregate active investors are the market, and they pay higher costs than it.
That does not make every active fund a bad idea. In less efficient corners such as small companies, some credit markets, and certain alternatives, skilled managers have a better record, and some of those strategies cannot be indexed at all.
Active ETFs: the middle ground
The clean line between cheap listed index funds and expensive unlisted active funds has blurred. Many Australian fund managers now offer their strategies as active ETFs, and a growing number run dual-access funds where one pool of assets can be entered either by application form or by buying on the exchange.
An active ETF gives you the convenience of the listed wrapper: no paperwork, no large minimum, live pricing. It does not give you the low fee. You pay for the manager either way. When comparing, look past the wrapper to the strategy and its cost, and check whether a listed and an unlisted class of the same fund charge the same fee. Usually they do.
Where LICs fit
Listed investment companies such as AFIC and Argo predate ETFs by decades and are still widely held. They trade on the ASX like ETFs, but they are closed-ended: the number of shares is fixed, so supply and demand for the LIC's own shares determines its price. It is common for an LIC to trade 5 to 15 percent below the value of its portfolio, and occasionally above it.
That discount can be an opportunity or a trap, depending on which side of it you transact. ETFs avoid the issue through the unit creation and redemption mechanism. On the other hand, LICs are companies, so they can retain profits and smooth their fully franked dividends through lean years, which income-focused investors value.
How to decide
A few questions settle it for most people.
- Do you want the market return, or a manager's judgement? Market return points to an index ETF. A specific manager points to whichever wrapper that manager offers.
- How much are you investing, and how often? Small regular amounts favour exact-dollar unlisted funds or a zero-brokerage ETF broker. The worked numbers are in ETF vs index fund.
- Do you already have a managed fund with a large unrealised gain? Switching triggers tax. Redirecting new money is usually the cleaner path.
- Are you investing through super or a wrap platform? The platform's menu may decide for you.
If you land on ETFs, how to invest in ETFs in Australia covers the practical steps.
One last distinction. ETFs and managed funds are both vehicles for investing over years. Neither is designed for short-term trading, for leverage, or for profiting from a falling market. Traders who want that use different instruments altogether, principally CFDs, which carry much higher risk: most retail CFD accounts lose money. That world is covered in ETF trading in Australia.
Trade ETF CFDs with AvaTrade
ASIC-regulated (AFSL 406684). CFDs on major US-listed ETFs alongside forex, indices, commodities and shares from one account. Long or short, AUD 100 minimum, free demo account. CFDs are leveraged and you do not own the underlying ETF.
Open AvaTrade accountSources and primary references
- ASIC Moneysmart: managed funds and ETFs - structures, fees, and risks.
- S&P Dow Jones Indices: SPIVA scorecards - active fund performance against benchmarks, including Australia.
- ASX: investment products - ETFs, active ETFs, and listed investment companies.
The fee example assumes a constant 7 percent gross annual return, annual compounding, and no tax or contributions. Fee ranges are indicative. Last reviewed: 2026-09-19.
Frequently asked questions
What is the difference between an ETF and a managed fund?
An ETF is a managed fund whose units are listed on a stock exchange. You buy and sell ETF units through a share broker at live market prices during trading hours. With an unlisted managed fund you apply to the fund manager (or through a platform), and units are issued or redeemed at a price calculated once a day after the market closes. ETFs are mostly low-cost index trackers; unlisted managed funds are mostly actively managed and charge more.
Are ETFs better than managed funds?
On cost, transparency, and convenience, ETFs usually come out ahead. Whether that makes them better for you depends on what you want. If you want the market return at the lowest cost, an index ETF is hard to beat. If you want a specific active manager or a strategy that is only offered unlisted, such as some private credit or long-short funds, a managed fund may be the only way in. This is general information, not advice.
Why are ETF fees lower than managed fund fees?
Most ETFs track an index, which needs no analysts or stock pickers, and index ETFs compete almost entirely on price. They also sell through the exchange, not through adviser networks and platforms that historically took a share of fees. Actively managed funds pay for research teams and portfolio managers, and that cost is passed on. An actively managed ETF costs about the same as its unlisted equivalent.
Is an ETF safer than a managed fund?
Neither structure is inherently safer. Both are registered managed investment schemes with assets held separately from the manager, and the risk comes from the underlying investments. ETFs offer more transparency, since most publish holdings daily, and more liquidity, since you can sell in seconds. Unlisted funds can suspend redemptions in a crisis, which has happened in Australia with mortgage and property funds.
What is an active ETF?
An active ETF is an actively managed fund in an exchange-traded wrapper. A portfolio manager picks the investments, and you buy units on the ASX like any ETF. Fees are similar to the unlisted version of the same strategy. Many Australian managers now run dual-access funds, where a single fund can be entered either by application or on the exchange. Active ETFs may disclose full holdings with a delay to protect the manager's positions.
What is the difference between an LIC and an ETF?
A listed investment company (LIC) is a company with a fixed number of shares that invests in a portfolio. Because shares are not created or redeemed on demand, an LIC's share price can sit at a discount or premium to the value of its portfolio for years. An ETF is open-ended: market makers create and redeem units, which keeps the price close to net asset value. LICs pay company tax and distribute franked dividends; ETFs are trusts that pass income through untaxed.
Can I switch from a managed fund to an ETF without paying tax?
Generally no. Redeeming units in a managed fund is a capital gains tax event, even if you reinvest the proceeds in an ETF holding the same assets the same day. Some investors keep their existing managed fund and direct new contributions to ETFs instead. If the fund is sitting on a capital loss, switching may crystallise a loss you can use. Speak to a registered tax agent about your situation.
