A mutual fund is a fund made up of different stocks. It can be purchased through a discount broker just like stocks. Mutual funds are load and no load funds. A load fund charge a certain percentage up front and should never be purchased. Most mutual funds do not have a buying or selling commission but most brokers will charge you a commission if you trade them too often. Although you can purchase a mutual fund at any time during the day, the trade will only be executed at the end of the day. You only get information about the price (NAV) of a mutual fund at the end of the day. Mutual funds typically charge an annual fee of about 1%-2% per year of your investment to manage the fund.
An ETF is similar a mutual fund in that stocks make up the ETF but it is traded like a stock in that the price will change during the day and you can buy or sell it at anytime and the trade will occur quickly. The brokerage charges you a commission that is the same as stocks but the expense fee is typically less than 1/2% annually. ETFs generally track an index and contains all the stocks within that index.
The most common ETF is the Spider ETF (SPY) which tracks the S&P500 index, pays your share of dividends that each of the 500 stocks in the index pays (currently 1.89% annually), and has a very low expense fee of 0.10% annually
