Expenses
Due to the generally passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about 0.10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds.

Another expense that should be considered are the product acquisition costs, if any. Mutual funds can often be purchased at NAV, or stripped of any loads, but many (they are often sold by an intermediary) have commissions and loads associated with them, some of which run as high as 8.5%. ETF purchases are free of broker loads.

In both cases, additional transaction fees are usually assessed, but pricing will largely depend on the size of your account, the size of the purchase and the pricing schedule associated with each brokerage firm. Clients of advisors who hold institutional accounts tend to benefit from lower trading costs, often as low as $9.95 per ETF purchase or $20 for mutual funds. Additional cost considerations should be given if you plan to use dollar-cost averaging to buy into the funds or ETFs, because frequent trading of ETFs could significantly increase commissions, offsetting the benefits resulting from lower fees.

Related Reading:



Liquidity

Related Articles
  1. ETFs & Mutual Funds

    Mutual Fund Or ETF: Which Is Right For You?

    Learn the differences between these investment products and how to take full advantage.
  2. ETFs & Mutual Funds

    How To Avoid Expensive ETFs

    Discover four tips for avoiding expensive ETFs. Learn why expense ratios should be low and how to prevent your investment from costing you come tax time.
  3. ETFs & Mutual Funds

    When Is the Right Time to Change From Mutual Funds to ETFs

    Find out how to determine when it's the right time for you to switch from mutual funds to ETFs, including the benefits of ETFs and who they are best for.
  4. ETFs & Mutual Funds

    Exchange-Traded Funds: Index Funds Vs. ETFs

    In much of the previous discussion comparing mutual funds to ETFs, the merits of actively managed mutual funds are compared to the passively managed ETFs. In some ways, it is like comparing apple ...
  5. Trading

    The Benefits Of ETF Investing

    Exchange-traded funds provide unique opportunities for investors. Find out how.
  6. ETFs & Mutual Funds

    For More And More Investors, ETFs Are A Godsend

    Average and cautious investors can experience lower risk with ETFs - a safer alternative to swaps and derivatives.
  7. ETFs & Mutual Funds

    ETFs or Mutual Funds: How to Know Which One to Use

    When are mutual funds—and not ETFs—a better choice for your portfolio? And when is the opposite true?
  8. ETFs & Mutual Funds

    Dollar-Cost Averaging With ETFs

    If you are investing small amounts regularly into an exchange-traded fund, be sure to do it right.
  9. Financial Advisor

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  10. Investing

    A Look At the Growth Of the ETF Industry

    Explore the phenomenal growth rate of the ETF industry, and learn some of the principal reasons why ETFs are projected to continue to grow at a rapid pace.
Trading Center