| Costs | | | | fund are required to pay the capital gains tax. |
| Being traded on an exchange, Exchange Traded | | | | Exchange Traded Funds do the exact opposite. |
| Funds are required to pay brokerage commissions. | | | | Instead of being redeemed by its shareholders, |
| Adversely, mutual funds directly purchased from | | | | ETF shares are sold just as any other stock, on |
| the original company don't charge any sort of | | | | the stock market. With ETFs investors only really |
| brokerage fees. ETF brokerage commissions are | | | | realize a capital gain when a share of stock is sold |
| anywhere from $10 to 20 but online discount | | | | or the trade reflects a change in the original index. |
| brokers offer as low as $3 trades. | | | | Typically, Exchange Traded Funds are known to |
| When compared to mutual funds, Exchange | | | | be much more tax efficient. |
| Traded Funds have much lower expense ratios. | | | | Exchange Traded Funds have great capital gains |
| Share-holder related expenses are much lower. | | | | benefits in the U.K. By placing earnings in a |
| Exchange Traded Funds also hold an advantage | | | | self-invested pension or an individual savings |
| not being required to invest cash contributions, | | | | account as they would do with other shares, |
| fund cash redemptions nor maintain a cash | | | | earnings can be protected from capital gains. |
| reserve for redemptions. ETF costs are around | | | | Trading |
| 0.1% - 1% in comparison to mutual funds which | | | | Exchange Traded Funds have some of the great |
| charge 1% - 3%. As these costs compound they | | | | advantages in that they have the ability to |
| can become very significant in the long run. Mutual | | | | perform and function like a traditional share of |
| funds charge either a front or back end load and | | | | stock. Short selling, options (puts and calls) can be |
| when compared to an ETF, which charges no | | | | written against them, buying on margin, stop-loss |
| load, it puts it at a huge disadvantage. | | | | orders, limit orders all apply. None of the previous |
| Taxation | | | | applies with mutual funds. |
| The structure of exchange traded funds in the | | | | Mutual funds only permit purchasing and selling at |
| U.S. makes them much more tax efficient than | | | | the end of the day, and at the fund's closing price. |
| mutual funds. Whenever a mutual fund realizes a | | | | This disables all benefits from stop-loss orders and |
| capital gain not balanced out by a loss, it must | | | | most brokers don't allow them. Because an |
| distribute a capital gain to its investors. This can | | | | exchange traded fund is continually priced |
| happen whenever a mutual fund sells portfolio | | | | throughout the day, its stock-like liquidity makes it |
| securities, whether to reallocate its investments | | | | possible for investors to make trades during |
| or to fund shareholder redemptions. Those who | | | | normal trading hours. |
| re-invest those gains in more shares of the same | | | | |