Being traded on an exchange, ETFs are required to pay brokerage commissions. Adversely, mutual funds directly purchased from the original company don't charge any sort of brokerage fees. ETF brokerage commissions are anywhere from $10 to 20 but online discount brokers offer as low as $3 trades.
When compared to mutual funds, ETFs have much lower expense ratios. Share-holder related expenses are much lower. They also hold an advantage not being required to invest cash contributions, fund cash redemptions nor maintain a cash reserve for redemptions. Their costs hover around 0.1% - 1% in comparison to mutual funds which charge 1% - 3%. As these costs compound they can become very significant in the long run. Mutual funds charge either a front or back end load and when compared to and ETF, which charges no load, an ETF holds a substantial advantage.
The way ETFs are structured in the U.S. creates much more attractive tax efficiency than that of mutual funds. Mutual funds must distribute capital gains to its investors whenever a mutual fund realizes a capital gain not balanced out by a realized loss. Whenever a mutual fund sells portfolio securities this can happen, whether it's for the purpose of reallocating its investments or to fund shareholder redemptions. Even those who invest those gains in more shares of the same fund are responsible for the capital gains tax.
ETFs behave in a total contrary manner. Instead of being redeemed by shareholders, its shares are sold on the stock market as any other stock. Investors generally only realize a capital gain when they sell shares of stock or when their trades reflect changes in the original index. ETFs are generally much more tax efficient than conventional mutual funds.
ETFs have great capital gains benefits in the U.K. By placing them in a self-invested pension or an individual savings account as they would do with other shares can be protected from capital gains.
Trading ETFs have some of the great advantages in that they have the ability to perform and function like a traditional share of stock. Short selling, options (puts and calls) can be written against them, buying on margin, stop-loss orders, limit orders all apply as well. None of the previous applies with mutual funds.
Mutual funds, unlike ETFs, only permit their investors to purchase or sell at the end or a trading day at the fund's closing price. This rule removes any benefit to be had from a stop-loss order. Investors are able to trade ETFs during regular trading hours throughout the day because of their stock-like liquidity that comes from its continual pricing throughout the day. - 32163
When compared to mutual funds, ETFs have much lower expense ratios. Share-holder related expenses are much lower. They also hold an advantage not being required to invest cash contributions, fund cash redemptions nor maintain a cash reserve for redemptions. Their costs hover around 0.1% - 1% in comparison to mutual funds which charge 1% - 3%. As these costs compound they can become very significant in the long run. Mutual funds charge either a front or back end load and when compared to and ETF, which charges no load, an ETF holds a substantial advantage.
The way ETFs are structured in the U.S. creates much more attractive tax efficiency than that of mutual funds. Mutual funds must distribute capital gains to its investors whenever a mutual fund realizes a capital gain not balanced out by a realized loss. Whenever a mutual fund sells portfolio securities this can happen, whether it's for the purpose of reallocating its investments or to fund shareholder redemptions. Even those who invest those gains in more shares of the same fund are responsible for the capital gains tax.
ETFs behave in a total contrary manner. Instead of being redeemed by shareholders, its shares are sold on the stock market as any other stock. Investors generally only realize a capital gain when they sell shares of stock or when their trades reflect changes in the original index. ETFs are generally much more tax efficient than conventional mutual funds.
ETFs have great capital gains benefits in the U.K. By placing them in a self-invested pension or an individual savings account as they would do with other shares can be protected from capital gains.
Trading ETFs have some of the great advantages in that they have the ability to perform and function like a traditional share of stock. Short selling, options (puts and calls) can be written against them, buying on margin, stop-loss orders, limit orders all apply as well. None of the previous applies with mutual funds.
Mutual funds, unlike ETFs, only permit their investors to purchase or sell at the end or a trading day at the fund's closing price. This rule removes any benefit to be had from a stop-loss order. Investors are able to trade ETFs during regular trading hours throughout the day because of their stock-like liquidity that comes from its continual pricing throughout the day. - 32163
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