ETF vs Mutual Fund Calculator
See how expense ratios and tax drag compound into a major dollar difference over your investment horizon.
ETF Final Value
Mutual Fund Final Value
Growth Comparison
Year-by-Year Summary
| Year | ETF Value | MF Value | ETF Advantage |
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ETF vs Mutual Fund: What the Numbers Capture
This calculator models two primary cost differences: the expense ratio (annual management fee, same in taxable and tax-advantaged accounts) and tax drag (capital gain distributions unique to taxable accounts — ETFs avoid these through in-kind creation/redemption).
The expense ratio compounds silently. A 0.70% drag on a portfolio growing at 7% doesn't reduce returns by 10% — it reduces the compounding base each year, so the cumulative impact is larger. On a $10,000 lump sum + $500/month over 20 years, the difference between a 0.05% ETF and a 0.75% mutual fund is often $25,000–$35,000.
Expense Ratio Benchmarks (2026)
- Broad market index ETFs (VTI, ITOT, SCHB): 0.03%–0.05%
- Sector/thematic ETFs: 0.10%–0.50%
- Actively managed ETFs: 0.40%–0.85%
- Index mutual funds (Vanguard VTSAX, Fidelity FZROX): 0.00%–0.15%
- Actively managed mutual funds: 0.50%–1.50%
- Target-date funds: 0.10%–0.75% (varies by provider)
Tax Drag Benchmarks
- Index ETFs: 0.05%–0.15% (very few distributions)
- Index mutual funds: 0.10%–0.20% (mostly from index reconstitution)
- Actively managed mutual funds: 0.20%–0.60% (high turnover = more distributions)
- Tax-advantaged accounts: 0% tax drag for all (use 0 in both fields)
When Mutual Funds Win
Index mutual funds from Vanguard, Fidelity, and Schwab have expense ratios essentially equal to index ETFs — sometimes lower. In a 401(k) or IRA, tax drag is irrelevant. In those cases, the ETF vs mutual fund choice is primarily about trading flexibility (ETFs trade intraday like stocks; mutual funds settle at end-of-day NAV) — not cost. For long-term buy-and-hold investors, this difference is irrelevant.
Frequently Asked Questions
What is an expense ratio?
An expense ratio is the annual fee a fund charges as a percentage of your assets — automatically deducted from returns. A 0.50% expense ratio on a $100,000 portfolio costs $500/year, every year, whether the fund goes up or down. Lower is always better, all else equal.
Are ETFs always cheaper than mutual funds?
Not always. Index ETFs are usually cheaper than actively managed mutual funds. But index mutual funds (Vanguard VTSAX, Fidelity FZROX at 0.00%) can match or beat ETF expense ratios. The key distinction is ETFs vs actively managed mutual funds — active management adds cost without consistent outperformance.
What is tax drag on a mutual fund?
When a mutual fund sells holdings to rebalance or meet redemptions, it passes capital gains to all shareholders — even those who didn't sell. ETFs avoid this through in-kind creation/redemption. In a taxable account, mutual fund capital gain distributions can cost 0.20%–0.60% annually in additional taxes.
Does this matter in a 401(k) or IRA?
In tax-advantaged accounts, tax drag is zero for both vehicles. Set both tax drag fields to 0. The expense ratio difference still matters in all accounts — even small differences compound significantly over 20–30 years.