PERFORMANCE ANALYSIS OF MUTUAL FUNDS VERSUS ETFS

AUTHOR – BHAGYAWANT SUSHANT SANTOSH, PG STUDENT AT GIBS BUSINESS SCHOOL, BANGALORE

BEST CITATION – BHAGYAWANT SUSHANT SANTOSH, PERFORMANCE ANALYSIS OF MUTUAL FUNDS VERSUS ETFS, ILE MULTIDISCIPLINARY JOURNAL, 4 (1) OF 2025, PG. 239-250, APIS – 3920-0007 | ISSN – 2583-7230.

Abstract

This study analyzes mutual fund and exchange-traded fund (ETF) performance in terms of risk management, cost efficiency, use of technology, and sustainable investment characteristics. It examines five main hypotheses on the performance of these funds, the impact of costs, risk management, technological innovation, and results of sustainable investments. The study uses a mixed-methods design, combining number-based financial analysis with survey responses from 103 investors and financial experts. To explore the interconnections between cost structures, risk management strategies, technology use, and overall performance measures, the study uses Partial Least Squares Structural Equation Modelling (PLS-SEM).

Major findings indicate that ETFs were less expensive to implement compared to mutual funds, with an average cost savings of 0.75%. They also managed liquidity better when the market was tight, with a 15% tighter bid-ask spread. Some respondents were not sure whether technology enhanced performance, but the analysis determined that AI-based ETFs had an 0.8% better Sharpe ratio compared to ordinary mutual funds. Additionally, the report indicates that 68% of actively managed mutual funds performed worse than the underlying benchmark indexes, while ETFs followed the underlying indices more closely during highly volatile periods.

The research provides transparent details on how such investment avenues are evolving, to the benefit of theoretical knowledge as well as actual investment decisions. Although ETFs are likely to provide benefits such as low fees and effective market replication, the best option among investment avenues relies on individual investment objectives, market conditions, and the ability of individuals to tolerate risk, as the research indicates. This research can assist investors, fund managers, as well as market regulators to better understand and maintain the prevailing investment environment.

Keywords: Exchange-Traded Funds (ETFs), Mutual Funds, Investment Performance, Cost Efficiency, Risk Management, Technological Integration, Sustainable Investment.