How does the cost of mutual funds compare to ETFs?
Generally, investors buying or selling ETFs will pay a transaction commission to a broker, whereas investors buying or selling no-load mutual funds directly from a fund company pay none. However, some brokers impose a commission to buy or sell no-load mutual funds. Other so-called “no transaction fee” mutual funds don’t charge a commission to buy, but often carry higher expense ratios. Also, ETFs do not impose back end redemption charges like many mutual funds. Ultimately, any fair cost analysis between ETFs and mutual funds should look at the total spectrum of expenses – not just the transaction fee to acquire the ETF or mutual fund. Pay close attention to the expense ratio, portfolio turnover, and tax efficiency of a mutual fund versus an ETF. Always refer to a prospectus for detailed information before investing.
