The main difference between an ETF and a mutual fund is liquidity and sometimes taxes. ETFs and mutual funds can track a specific index with NO manager input, or be actively managed.
Liquidity ETFs trade like a stock, so you can buy at 10am and sell at 11am if you wish. Mutual funds NAV (NAV = Net Asset Value) is calculated at the end of each business day, so there is no intraday trading. Also, ETFs are similar to stocks in that you need a market buyer/seller whereas a mutual fund's units are sold back to itself. Mutual Funds can be closed to trading, however it is rare.
Tax treatment Both come down to the underlying holdings in the fund or ETF. However, more often in Mutual Funds you could be stuck paying someone else's taxes, not true with an ETF. For example, you buy an Equity Mutual Fund 5 years ago, you sell the fund yourself today for little to no gain. I buy the fund a month ago and the fund manager sells a bunch of the stocks they bought for it 10 years ago for a hefty gain. I have a tax liability, you do not even though it is possible that neither of us have any gains in our pocket. It can even go one step further and 6 months from now I could be down money on paper and still have a tax liability.
Expenses A Mutual Fund has an MER or Management Expense Ratio, you pay it no matter what. If the fund has a positive return of 12.5% in any given year and it has an MER of 2.5%, then you are up 10%. However if the fund loses 7.5% with the same MER, you are down 10%. An ETF usually, but not always, has a smaller management fee (typically 0.10-0.95%) but you will have trading costs associated with any trades. Risks involved in these as well as any investment are many and likely too long to go into here. However in general, if you have a Canadian Stock ETF it will have similar risks to a Canadian Equity Mutual Fund. I hope this helps.
