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ETF vs Funds

  • 04-09-2013 1:55pm
    #1
    jank
    Banned (with Prison Access) Posts: 13,018 ✭✭✭✭


    Question for you. What is the actual differences between Mutal funds and ETF.
    My understanding of funds is that it is just a collection of shares from different companies owned by a investment bank of somesort. You can buy into a fund for a price, pay an ongoing fee and of course when you exit a fund you got to pay another fee. Seems a bit of a rip off tbh.

    Now to me the only difference between an ETF and a fund are that the fees are a lot lot lower. So is that the only difference. If I buy into an ETF am I buying actual shares, are there other risks and what are the tax implications?


Comments

  • #2
    simongurnick
    Registered Users, Registered Users 2 Posts: 1,919 ✭✭✭simongurnick


    One of the big differences is management of the fund. Mutual funds are actively managed (hence the fees), most ETF's are not.
    ETF's are effective in that many will replicate a market or commodity which can give you diversity and exposure without having to hold 100 positions or invest in commodities. Examples on the US markets would by SPY which tracks the S&P and DIA which tracks the DOW or GLD for gold and SLV with silver.
    You also can get into leveraged ETF's which replicate the performance of an index times two or three. Other options are short ETF's which will effectively allow you to short the market by buying the etf...thereby avoiding any dividend risks.
    ETF's are traded on the market like a stock, giving you more liquidity when buying and selling.
    As for the tax implications, I am not sure from an Irish perspective but they will have internal capital gains distributions throughout the year. Best to consult the prospectus of the etf or have a tax accountant look over it.


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