Our video tutorial outlines the different cost structures between ETF’s and traditional funds.
ETFs and traditional funds have very different cost structures. That is the costs associated with investing in an ETF differ greatly from that of other funds
Both ETF’s and traditional funds carry an annual charge called the TER (Total Expense Ratio) which covers the fees and costs in managing the underlying portfolios
The annual TER cost for ETF’s is generally lower than for equivalent mutual funds
However with ETF’s there are additional costs and charges such as bid-offer spreads (pause) and trading commissions (pause). These need to be considered carefully.
Thus although initially the cost of investing in an ETF may appear higher than that of a traditional fund, over time, the lower annual costs of an ETF, should overcome the trading spread and commission costs, at the breakeven point.
The investors holding period is then an important consideration in deciding between an ETF and a traditional fund
Finally a quick note on distributions. ETF investors may receive an income distribution at the end of each distribution period just as with a traditional mutual fund, typically (although not always) every quarter.
The amount received is based on the number of ETF securities held by the investor and the dividend declared for each security.