The main cost of both ETFs and mutual funds is the expense ratio. This is a percentage of the net assets in the fund that is deducted from it each year. ETFs tend to have significantly lower expense ratios than mutual funds, which is largely due to the costs of having active managers controlling the investments in the mutual fund. However, passively managed index mutual funds tend to have very low expense ratios, just like passive ETFs. On the other hand, mutual fund investors often save on commissions because they can buy them commission-free from the mutual fund provider. But many brokers now also offer commission-free trading on ETFs, so this is no longer a distinct advantage for mutual funds.
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Fund flows data shows assets in mutual funds still dominate etfs
October 22 , 2020 |4 Comments
Etfs Often Have Lower Fees Than Mutual Funds
Mutual funds can charge load fees, which are fees when you buy and sell fund shares. In addition, mutual funds charge an annual fee as a percentage of how much you have invested. The annual cost, known as an expense ratio, is often around 0.5% to 1% for actively managed funds, though they can sometimes be more than 2%. According to Vanguard, the industry average mutual fund expense ratio is 0.63%. That's brought down by lower-cost index mutual funds, which follow market indexes like the S&P 500. Like stocks, you can trade ETFs with no commissions at most major brokerages. There are no load fees when buying or selling. There are still expense ratios, but they tend to be much lower than mutual funds. According to Vanguard, the industry average expense ratio is 0.23%. That's about a third of the average mutual fund. You probably wouldn't pay three times more for a similar car or home appliance. Why would you pay three times more for similar investments? I know I wouldn't.
Low Cost Index Mutual Funds Vs Etfs
Fund Flows Data Shows Assets In Mutual Funds Still Dominate Etfs
In the last few years, press coverage and advertising has focused on ETFs. But you may be surprised to know that ETFs account for only 19% of total assets. Mutual funds continue to dominate for a couple reasons: 1) they’re the older investment vehicle, and 2) they’re still the primary vehicle available in corporate retirement plans, such as 401(k) and 403(b) plans. Until ETFs can break into the retirement plan market, mutual funds will be a big part of investors’ portfolios.
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