Portfolio Management interview preparation

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100

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24

Updated

September 2026

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Topic

All topicsPortfolio theory5Factor models8Asset allocation11Rebalancing3Portfolio construction7Benchmarks and tracking error5Performance measurement8Risk management6Fixed income and LDI5Currency and global3Implementation and costs5Active versus passive6India markets7Brainteasers5Career and fit16

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1. 068What is the difference between an ETF and a mutual fund?Active versus passiveCorephone / first roundVanguardGeneralist · Malvern · 2026

   Say this

   Both are pooled vehicles, but an ETF trades on an exchange all day at a market price while a mutual fund transacts once a day at NAV. The structural consequence that matters is the creation and redemption mechanism, which makes ETFs more tax efficient and shifts trading costs onto the person doing the trading.

   Then walk it

   1. Dealing: mutual fund orders are aggregated and struck at one NAV per day. An ETF trades continuously at a price that can sit at a premium or discount, with an authorised participant arbitraging the gap by creating or redeeming baskets.
   2. The in-kind mechanism is the real difference. Redemptions are met by delivering securities to the authorised participant rather than selling them, so the fund does not realise capital gains. In the US that makes ETFs materially more tax efficient than mutual funds, which must distribute realised gains.
   3. Cost incidence: in a mutual fund, one investor's redemption forces the fund to trade and all remaining holders pay the cost. In an ETF, the seller crosses the spread themselves, so long-term holders are insulated. That is a genuine fairness advantage.
   4. Where mutual funds are better: automatic investment plans and fractional amounts, no bid-offer spread for regular small contributions, and no risk of trading at a discount in a stressed market. For a monthly SIP investor a mutual fund is often the better instrument even if the ETF's expense ratio is lower.
   5. In India the differences are sharper. ETF liquidity is thin outside the Nifty and Sensex trackers, so tracking difference and impact cost can exceed the expense ratio saving, and index funds rather than ETFs are usually the better passive vehicle for a retail investor. Institutional flows, particularly EPFO, dominate Indian ETF assets.
   6. And the caveat on stressed markets: an ETF's price is a real-time price, so in a dislocation it can trade well below the stale NAV of an illiquid bond portfolio. That is the ETF telling the truth faster, not the ETF failing, and it is worth being able to say that clearly.

   Where candidates lose it

   Answering only 'ETFs trade intraday'. The substance is the in-kind creation and redemption mechanism and who bears trading costs. And do not claim ETFs are always better; for a regular small contribution plan, and in India where ETF liquidity is thin, an index fund is frequently the right answer.

   Expect next

   • Why is an ETF more tax efficient?
   • What happens when an ETF trades at a discount to NAV?
   • ETF or index fund for an Indian retail investor?

   Reported by candidates at Vanguard (Generalist, Malvern, 2026). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.