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advantages of ETFs over mutual funds include the following:
- Tax-Friendly Investing - unlike mutual funds, ETFs are very tax-efficient. Mutual funds typically have capital gain payouts at year-end, due to redemptions throughout the year; ETFs minimize capital gains by doing like-kind exchanges of stock, thus shielding the fund from any need to sell stocks to meet redemptions. Therefore, it is not treated as a taxable event.
- No Investment Minimums - Several mutual funds have minimum investment requirements of $2,500, $3,000 or even $5,000. ETFs, on the other hand, can be purchased for as little as one share.
- Lower Cost Alternative - The average mutual fund still has an internal cost well over 1%, whereas most ETF funds will have an internal expense ratio typically between 0.30-0.95%. Plus, ETFs do not charge 12b-1 fees (advertising fees) or sales charges, as do many mutual funds.
ETFs have several similarities to mutual funds. Like a Mutual Fund, an ETF is a pool or basket of investments. However, ETF’s many times have lower expenses then a similar mutual fund in that there are no loads and the operating expenses are often lower.
ETFs trade throughout the trading day, like a stocks, while mutual funds trade only at the end of the day at the net asset value (NAV) price.Please let me know if you need any clarification. I'm always happy to answer your questions.
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