What are the benefits of ETFs over Mutual funds?

dllive

Hi,

I invest on the Vanguard platform. What are the benefits - if any - ETFs have over the mutual fund equivalent? Ive always select the mutual fund 'flavour' becuase I dont want to pay the £7 fee that Vanguard charges. I dont need my deal to be actioned immediately, and happy to wait for whenever its next traded (twice a day I think for a mutual fund?)

The other reason why I like mutual funds is because theyre covered by FSCS, where ETFs arent.

Am I correct so far?

If so, what are the benefits - if any - of ETFs over mutual funds?

I mainly ask this question because a lot of Youtube investing channels seem to talk about ETFs, rather than the mutual fund equivalents.

Thanks

dunstonh

mutual funds is an Americanism.   There were attempts by some to port it here, but it never took off, thankfully.

 What are the benefits - if any - ETFs have over the mutual fund equivalent?

In days of old, UT/OEICs were bundled for charges and ETFs were unbundled.  That used to give ETFs a price advantage.  However, since 2013, they are all unbundled.   So, cost advantage no longer applies.     Although you do see some sites mention cost advantage as a reason but those sites are out-of-date.

Pretty much the main benefit is live pricing and able to deal during trading hours.

And the main disadvantage is no FSCS protection and needing to know of additional risks, such as replication method.

dllive

Ah, thanks @dunstonh . Glad I wasntt completely wide of the mark.

So really, that £7 fee is just for you to be able to trade at the live price. (I presume an ETF has all the same ongoing fees as an index fund?)

ColdIron

You won't need to pay stamp duty as most ETFs are not domiciled in the UK

dllive said:

Ive always select the mutual fund 'flavour' becuase I dont want to pay the £7 fee that Vanguard charges. I dont need my deal to be actioned immediately, and happy to wait for whenever its next traded (twice a day I think for a mutual fund?)

Vanguard don't charge for trading if you are happy to use the bulk purchase option rather than live trading

ColdIron

dllive said:

(I presume an ETF has all the same ongoing fees as an index fund?)

No they can be different

Also the ETF will have a bid offer spread and you can't buy a bit of a share like you can with OEIC units

eskbanker

dllive said:

I presume an ETF has all the same ongoing fees as an index fund?

If you're looking for a more suitable alternative term for the American 'mutual fund', then it's OEICs (open-ended investment companies) that you want, as ETFs often track indices too, making them index funds as well....

Prism

eskbanker said:

dllive said:

I presume an ETF has all the same ongoing fees as an index fund?

If you're looking for a more suitable alternative term for the American 'mutual fund', then it's OEICs (open-ended investment companies) that you want, as ETFs often track indices too, making them index funds as well....

Just to add a technicality since we are talking about non ETF Vanguard funds, many are not OEICS. They are all UCITS. 

wmb194

ColdIron said:

You won't need to pay stamp duty as most ETFs are not domiciled in the UK

dllive said:

Ive always select the mutual fund 'flavour' becuase I dont want to pay the £7 fee that Vanguard charges. I dont need my deal to be actioned immediately, and happy to wait for whenever its next traded (twice a day I think for a mutual fund?)

Vanguard don't charge for trading if you are happy to use the bulk purchase option rather than live trading

Good luck finding any but a few years ago UK domiciled ETFs were made exempt from stamp duty.

wmb194

I can give you a disbenefit of overseas domiciled ETFs held in a GIA, namely the annoyance of having to worry about reporting excess reportable income on your tax return. I always find it annoying and time consuming to collate the data.

GeoffTF

Prism said:

eskbanker said:

dllive said:

I presume an ETF has all the same ongoing fees as an index fund?

If you're looking for a more suitable alternative term for the American 'mutual fund', then it's OEICs (open-ended investment companies) that you want, as ETFs often track indices too, making them index funds as well....

Just to add a technicality since we are talking about non ETF Vanguard funds, many are not OEICS. They are all UCITS. 

The Vanguard FTSE 100 Unit Trust is the only Vanguard non-ETF and no-OEIC that I know about. ETFs can be UCITS compliant, but that does not necessarily make them any better or safer.

https://www.hl.co.uk/help/funds-shares-and-other-investments/etfs/risks/what-is-ucits

https://www.investopedia.com/terms/u/ucits.asp

Vanguard's free bulk dealing takes place twice a day and gets good prices in my experience, and occasionally better prices than you can get on the London Stock Exchange. A majority of Vanguard OEICs are now domiciled in Ireland and have Excess Reportable Income.

GeoffTF

Here is a Vanguard article on this subject:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/how-to-build-a-portfolio-part-five

Interestingly, Vanguard does not come up with any advantages for mutual funds, except for the absence of a bid/offer spread. Even there they point out: "At Vanguard, all our UK and Irish domiciled mutual fund range operate a partial swing pricing model. This means we take into account a fund’s net cash flows when setting our daily prices." Paying bid/offer spreads will not necessarily cost you more to trade than partial swing pricing.

ETF spreads can widen in difficult trading conditions, and they can trade at a discount or premium to Net Asset Value (NAV), particularly for smaller ETFs with low trade volumes. Nonetheless, OEICs and Unit Trusts will have problems too. If the underlying assets become illiquid, the ETFs typically at a discount, whereas OEICs and Unit Trusts typically do not trade at all.