Mutual funds vs. ETFs, the war wages on. Which is the better investment? There’s no clear-cut answer, but understanding the risks and benefits of each asset will allow you to pick the best investment that fits your strategy. Here are five reasons to consider buying or selling an exchange traded fund in lieu of a mutual fund.
- Tax Benefits
The biggest advantage an ETF has over a mutual fund is the tax benefit. Due to their construction, ETFs only incur capital gains taxes when the fund is sold.
- Simplicity
When you buy or sell an ETF, it is done at one price with one transaction. You are a trade away from opening or closing a position. With mutual funds, shares in the asset are constantly being traded to hit a target price and seek a desired performance.
- Cost Effective
As well as being simplistic investments, ETFs are also more cost-effective than mutual funds. Since shares in a mutual fund are actively traded and the fund itself is actively managed, they sometimes rack up large management fees. Nifty BeES and Gold BeES are a fine example.
- Investing Flexibility
There are so many types of ETFs for investors, tracking the performance of a certain index or achieving a specific financial goal may be more attainable than with a mutual fund.
- Transferability
Whenever a managed portfolio is switched to a different investment firm, complications arise with mutual funds. With an ETF, the transfer is clean and simple when switching investment firms. They are considered a portable investment.
There is no definite answer to which is a better investment. However if you are faced with an ETF vs. mutual fund dilemma, consider the disadvantages of mutual funds and the advantages ETFs bring to the table.