What are the costs of ETFs?

Like mutual funds, ETFs charge total expense ratios to cover ongoing operating expenses. But they also have some costs that aren't associated with mutual funds. Let's have a look at these. ETFs charge fees to cover ongoing operating expenses, such as fund management costs, administration and recordkeeping. These fees are expressed as a percentage of fund assets and are commonly known as the total expense ratio or the ongoing charges figure, (the OCF). ETFs tend to have lower TERs or OCFs than mutual funds, but this is largely because most mutual funds are actively managed and charge higher TERs and OCFs than their index counterparts. As the vast majority of ETFs are index funds, their TERs and OCFs, on average are lower than traditional mutual funds. When buying or selling ETF shares on an exchange, there is a difference between the price a dealer is willing to pay for an ETF share, (the bid), and the somewhat higher price than the dealer will accept to sell that ETF share, (the ask). As a result, an investor will typically buy ETF shares for slightly over the market price and sell for slightly less. Bid-ask spreads are typically lower for ETFs that are heavily traded or that own securities that are highly liquid.