Comparing ETF Fees and Mutual Fund Fees (2024)

FAQs

Comparing ETF Fees and Mutual Fund Fees? ›

ETFs have transparent and hidden fees as well—there are simply fewer of them, and they cost less. Mutual funds charge their shareholders for everything that goes on inside the fund, such as transaction fees, distribution charges, and transfer-agent costs.

For example, in 2022 an average mutual fund (asset-weighted) would cost 0.44 percent of your assets each year. In practical terms, it would cost $44 for every $10,000 you have invested. In contrast, the comparable average ETF has an expense ratio of just 0.16 percent, or $16 annually for every $10,000 invested.

ETFs are generally considered more tax-efficient than mutual funds, owing to the fact that they typically have fewer capital gains distributions. However, they still have tax implications you must consider, both when creating your portfolio as well as when timing the sale of an ETF you hold.

Trading commissions

Also known as ETF transaction fees or ETF transaction costs, these may range from $8 to $30 at brokerage firms. Trading commissions are charged per trade, so they can add up if investors buy and sell a lot—and they're usually more expensive when an order is placed in person or over the phone.

ETF expense ratios could be as low as 0.35%. An active mutual fund could have a total expense ratio of up to 2%. Expense ratios eat into the returns of funds, so the lower the expense ratio, the better.

Mutual fund shareholders pay income taxes on those distributions, and the fund company handles transactions, increasing its operating expenses. Since the sale of ETF shares does not require the fund to liquidate its holdings, its costs are lower.

ETFs usually have to disclose their holdings, so investors are rarely left in the dark about what they hold. This transparency can help you react to changes in holdings. Mutual funds typically disclose their holdings less frequently, making it more difficult for investors to gauge precisely what is in their portfolios.

ETFs often generate fewer capital gains for investors than mutual funds. This is partly because so many of them are passively managed and don't change their holdings that often.

ETFs are generally lower than those that are charged by actively managed mutual funds because their managers are merely mimicking the contents of an index rather than making regular buy and sell decisions, For some investors, the design of a passive ETF is a negative.

Do ETFs have lower fees than mutual funds? ›

Most ETFs have low expenses compared to actively managed mutual funds. ETF expenses are usually stated in terms of a fund's OER. The expense ratio is an annual rate the fund (not your broker) charges on the total assets it holds to pay for portfolio management, administration, and other costs.

$0.00 commission applies to online U.S. equity trades, exchange-traded funds (ETFs) and options (+ $ 0.65 per contract fee) in a Fidelity retail account only for Fidelity Brokerage Services LLC retail clients. Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal).

Have ETFs somewhere else? *Vanguard average ETF expense ratio: 0.06%. Industry average ETF expense ratio: 0.24%. All averages are asset-weighted.

ETF fees are accrued daily, which means they are reflected in the daily price of an ETF; however, the fees are typically deducted from fund assets on a monthly basis. From the investor's perspective, ETF fees are not directly paid like a monthly bill. Instead, they are reflected in a fund's net return.

While ETFs often have lower fees than mutual funds, there are additional factors to consider when measuring the cost of owning an ETF. Asset managers often price ETF fees at the same level as the institutional share class of mutual funds, with no sales loads.