Is there any advantage in owning a Mutual Fund vs. an ETF?
What's the point in buying a mutual fund anymore? There doesn't seem to be any advantage in holding a mutual fund versus an ETF?
Answers
699 points
7million7years answered one year ago …
There's a Forbes article mentioned in this post that you should read:
http://7million7years.com/2008/03/22/index-funds-or-etfs-you-choose/
312 points
MoresbyChief answered one year ago …
One big advantage for funds is for when you want to dollar cost average every month - I'm not sure how it works in the USA, but in the UK brokers charge zero commission on buying/selling funds, whereas if you're buying an ETF every single month, your returns will be quite significantly impacted by commission fees.
Of course this assumes that you go for a fund with 'no load' ie no upfront charge. In any case, in the UK most brokers give you a full discount on the initial load for funds that charge, so they're essentially free to buy.
On the other hand, if you are buying in large lump sums, the broker commission will be a very small % of your capital invested, therefore ETFs have the advantage of a lower annual TER % compared with funds.
So I suppose the answer is, ETFs are cheaper when buying in larger transactions. For small regular transactions go for a fund with a very low TER.
2769 points
Oldman answered one year ago …
Some mutual funds have collections of securities that aren't available in ETFs (or even in Closed_end Funds). And some of them are pretty good for their return/unit of risk. So it depends on what you're looking for, also called the "granularity" of a portfolio.
For example, Value funds aren't represented by ETF's. You have to shop and find a fund mangement that's sharp about buying future growth at a large discount, or turn-around situations. Funds that come to mind are Third Ave., Tweedy Brown, and before being taken over by Franklin, the Mutual series of funds (now they're load funds).
Another example is investing in frontier or "politically" hazardous markets, where fund mangers have some experience and - without pointing any fingers - know who has the correct info about some hyped security. Some mutual and Closed-End fund managers are great about this: Matthews; Global Growth: T.RowePrice, are some examples of Management groups that have "feet on the ground" in the MidEast, Russia, Asian markets; etc.
Again, this is not to "Knock" ETFs or Index funds (some of which have ETF comparables)...and certainly, with ETFs the expense ratios are usually less than with mutual funds, and their tax - efficiency may be better, because most ETFs don't have a big turnover of securities, but then a lot of value funds don't have a tremendous turnover, except among small caps.
If you have a significant charge for trading securities, then a mutual fund that doesn't require a load or fee for additional deposits is one better way to start. Some even have "Account Builder" features that let you commit, for example, $500.00/ per quarter by direct deposit from a bank account ... instead of requiring a large , e.g., $2000-3000, deposit to start an account with that fund.
So these are some of the reasons mutual funds may be a good companion to ETFs in a broadly diversified stock portfolio.
699 points
7million7years answered one year ago …
The three issues that you should be looking at IF you're going to buy a 'product' of any kind:
1. Does it diversify you into enough of what Warren Buffett calls "small pieces of all of American Business"?
2. Are the entry fees low enough that you can dollar-cost-average in (another WB recommendation)?
3. Are the management fees low enough not to hurt your returns?
... a good Index Fund should do this (e.g. Vanguard). Spider ETF's as well (check my blog 7million7years.com as I recently wrote a post recommending the Fund over the ETF).
