Q. Why ETFs can keep costs low compared with mutual funds?
A. When we say a fund is expensive or not, we usually refers to the fund's expense ratio. While ETFs are not always the cheapest option, their structure keeps costs low.
When you invest in a mutual fund, the manager has to buy securities with your cash, as well as keep records, etc. all of which have costs.
With ETFs, you buy existing shares that an institutional investor has already created, minimizing transaction costs, since no one at the ETF has to register your order.
When demand and supply of an ETF do not match, the ETF's price could deviate from its Net Asset Value, someone could view this as an disadvantage of ETFs.
A. When we say a fund is expensive or not, we usually refers to the fund's expense ratio. While ETFs are not always the cheapest option, their structure keeps costs low.
When you invest in a mutual fund, the manager has to buy securities with your cash, as well as keep records, etc. all of which have costs.
With ETFs, you buy existing shares that an institutional investor has already created, minimizing transaction costs, since no one at the ETF has to register your order.
When demand and supply of an ETF do not match, the ETF's price could deviate from its Net Asset Value, someone could view this as an disadvantage of ETFs.
RSS Feed
