[Investment] Exchange Traded Funds (ETFs) vs Unit Trust

Exchange Traded Funds (ETFs) hold a basket of securities to track performance of a specific index. Unit trust funds also hold a portfolio of assets. Nevertheless, both funds have marked differences.

The main differences between ETFs and unit trust funds are:

Investing Objective

ETFs	Passively managed. Designed to follow performance of an index. No active selection of underlying securities and returns made by ETF fund manager. ETF fund manager will closely follow performance of its benchmark index.
Unit Trust Funds	Actively managed. Investors pay fund managers to select stocks (or other securities) in order to outperform a selected index. Performance of unit trust funds depends on the fund manager's skills and the supporting structure provided by the fund management company.
Index Funds	Index Funds Employ the same investing strategy. The main difference is in the cost of investing (sales fees vs. ETFs brokerage charge) and the annual management fee.

Buy and Sell Transactions

ETFs	Listed and quoted on a stock exchange. ETFs are bought and sold like stocks throughout the trading day.
Unit Trust Funds (including index funds)	Buy and sell via agents working for a fund management company or through institutional unit trust agents such as banks. Purchases or redemptions are done at a single price at the end of a trading day as the price of units in a fund depends on the closing price of its components.

Cost to Invest

ETFs	There is a brokerage fee, clearing fee and stamp duty, similar to trading shares. The annual management fee usually is less than 1% of the fund's NAV.
Unit Trust Funds (including index funds)	Usually impose an upfront sales fee between 3% to 5%. Both funds typically levy a back-end charge or exit fee which investors pay when they redeem the fund. Fund's annual management fee can be between 0.75% to 5% per annum of the fund's NAV.

Minimum Investment Amount

ETFs	Like shares, there is no minimum investment amount for ETFs.
Unit Trust Funds (including index funds)	Most unit trusts usually require an initial minimum investment of RM 1,000. Subsequent investments are lower, typically RM 100.

More Similarities and Differences between ETFs and Funds listed here.

	ETFS	Unit Trust Funds
Continuous trading and pricing throughout the trading day?	Yes	No
Prospectus available?	Yes	Yes
Can be purchased online?	Yes	Yes
Redemption charges for withdrawals	No	*Yes
Possible to view the underlying securities?	Yes	**No
Possible to receive dividends?	Yes	Yes

* Only for specific unit trust i.e. through a bank
** Only for specific unit trust funds, typically bond funds.
*** Most funds only reveal their top ten holdings.

(Source: Bursa Malaysia)