An exchange traded fund (ETF) is a managed fund that you buy and sell on a stock exchange. ASIC's MoneySmart ETF page, last updated 2 September 2026, puts it that way: when you invest in an ETF you buy units in a managed fund. The fund pools your money with other investors, and you do not own the underlying shares, bonds or other assets directly.

The useful comparison is therefore not "ETFs versus investing" but "an ETF versus an unlisted managed fund that holds a similar mix of assets". Both can be broadly diversified, both have fees, and both can fall in value. They differ mainly in how you buy and sell, how the unit price is set during the day, and, often, in the fee and the investment style.

This explainer follows MoneySmart's managed funds and ETF guidance. It does not rank products, name a "best" ETF, or forecast returns.

This is general information only. It is not personal advice, and it is not a recommendation to buy any fund or ETF.

What is the same?

In both structures you hold units in a fund, not a direct parcel of every underlying investment. The fund's value can go up or down with those assets and with the income they generate. You can lose money. Fees and trading costs reduce your return.

Both can invest in Australian or international shares, a market sector, property or infrastructure, cash or bonds, or a mix of those. Some also offer exposure to commodities, currencies or crypto-assets. The product disclosure statement (PDS) is the document that sets out the goal, the strategy and the risks.

Distributions can include dividends, interest, franking credits and capital gains, depending on what the fund holds and what it has sold. You generally use the annual tax statement, not the cash you received, when you lodge. See tax on shares and dividends and franking credits.

How you buy and sell

Most ETF investors buy and sell units on the exchange, through a broker or investment platform, at the market price at the time of the trade. Brokerage or other fees can apply. Trades on Australian stock exchanges usually settle two business days after the trade (T+2). MoneySmart notes that ETF providers can create and redeem units to match demand, which helps keep the market price close to the fund's net asset value (NAV). ETFs typically publish the NAV each trading day. Some ETFs also let you transact directly with the issuer.

An unlisted managed fund is usually bought and sold with the fund issuer, an adviser or a platform, at a unit price the fund strikes under its rules, often once a day. Application and withdrawal forms, minimum amounts and notice periods can apply. MoneySmart's guidance on choosing a managed fund specifically tells you to check withdrawal rules, as well as what the fund invests in, its fees, risks and long-term returns.

Those dealing differences matter if you might need the money quickly, if you want to transact during market hours, or if you are investing a very small amount. MoneySmart says you can typically buy smaller quantities of ETF units than of unlisted managed funds. They also matter if the market price of an ETF moves away from NAV at a stressed time, or if an unlisted fund delays withdrawals.

Passive, active, physical and complex

MoneySmart says that in Australia most ETFs are passive and aim to track an index or an asset, such as the S&P/ASX 200, rather than have a manager pick holdings. The ETF's value goes up or down with that index or asset. Active ETFs, and many unlisted managed funds, have a manager who chooses investments in line with a stated goal, which may be to outperform an index, to produce income, or to grow the fund's value.

Some ETFs are physically backed, meaning they own all or some of the assets in the index they track. Others are synthetic and use derivatives to copy those movements. MoneySmart warns that synthetic ETFs have the extra risk that the counterparty to the derivative could fail.

Some ETFs are labelled complex. They can be active or passive, and the label means they use more complex strategies than simply owning stocks, bonds or other assets, such as borrowing, short selling or derivatives. Borrowing can magnify gains and losses.

An unlisted managed fund can also be passive or active, simple or complex. The structure of the vehicle does not, on its own, tell you how risky the assets are. A narrow sector ETF and a narrow sector unlisted fund can both move sharply. A broad index fund, listed or unlisted, is still exposed to the market it tracks.

Fees and what to compare

MoneySmart lists low management fees as a possible benefit of many ETFs, and says they may usually be cheaper than equivalent managed funds that are not quoted on an exchange. That is a general observation, not a guarantee for every product. An ETF still has a management fee, and you may also pay brokerage, bid-ask spread and, for some international funds, currency-related costs. An unlisted fund may have a management fee, a buy-sell spread and, in some cases, contribution or withdrawal fees.

MoneySmart provides a managed funds fee calculator to show how fees can affect an investment over time. Compare the PDS fee tables, not only a headline percentage, and look at what is left after fees over your intended holding period. Past returns in a PDS or on a website are not a forecast.

Other comparison points, from MoneySmart's choosing-a-managed-fund guidance and the ETF risks list, include:

  • what the fund actually invests in, and whether that matches your time frame and risk tolerance
  • liquidity of the fund and of the assets it holds
  • currency risk on overseas assets
  • credit and interest-rate risk on bond funds
  • manager risk on an active strategy
  • how and when you can withdraw
  • the tax statement you will need to keep

Frequently asked questions

Is an index fund the same as an ETF?

Not always. An index fund is a fund that aims to track an index. Some index funds are ETFs, and some are unlisted managed funds. Conversely, some ETFs are actively managed and do not simply track an index.

Do I pay capital gains tax inside the ETF or when I sell my units?

Both can matter. Selling your units can trigger a capital gain or loss, in the same broad way as selling other securities you hold as an investor. The fund may also distribute capital gains when it sells assets inside the fund, which can appear on your annual tax statement even if you did not sell any units. Use the statement and the CGT calculator guidance, and see tax on shares and dividends.

Should I pick a fund based on last year's return?

No. MoneySmart's comparison advice is to look at goals, time frame, risk, fees, long-term returns and withdrawal rules, and whether the fund is designed for someone like you. A single year, or a "best ETF" list, is not a substitute for the PDS.

General information warning

This article is general information only. It is not personal financial product advice, and it is not a recommendation to buy, sell or hold any ETF or managed fund. It does not take into account your objectives, financial situation or needs. All of these products can fall in value, and fees and tax change the result. Read the PDS, and consider speaking with a licensed adviser, before you invest.

Sources

  • ASIC MoneySmart, Exchange traded funds (ETFs), last updated 2 September 2026, including how ETFs work, passive and active types, physical and synthetic structures, benefits, risks and T+2 settlement.
  • ASIC MoneySmart, Managed funds and ETFs, last updated 30 October 2026, including choosing a managed fund and the managed funds fee calculator.

Last reviewed: November 2026.