Are index ETF expenses low?
Due to reduced marketing and distribution expenses and the passive nature of index investing, the expense ratios are typically lower than those of many traditional mutual funds. For index ETFs that are not registered investment companies (i.e. HOLDRs), an annual custody fee of 0.08% is charged if any of the underlying stocks pay dividends. However, investors must still pay a brokerage commission to purchase and sell shares for all index ETFs. For those investors who trade frequently, this can significantly increase the cost of investing in index ETFs. So while index ETFs may have lower expense ratios, the total costs to the investor may not be lower. In addition, shareholder accounting for index ETFs is maintained at the investor’s brokerage firm, rather than at the fund. This creates no problems for the shareholder, although it does have some significance for the distribution of index ETFs.
Due to reduced marketing and distribution expenses and the passive nature of index investing, the expense ratios are typically lower than those of many traditional mutual funds. For index ETFs that are not registered investment companies (i.e. HOLDRs), an annual custody fee of 0.08% is charged if any of the underlying stocks pay dividends. However, investors must still pay a brokerage commission to purchase and sell shares for all index ETFs. For those investors who trade frequently, this can significantly increase the cost of investing in index ETFs. So while index ETFs may have lower expense ratios, the total costs to the investor may not be lower. In addition, shareholder accounting for index ETFs is maintained at the investor’s brokerage firm, rather than at the fund. This creates no problems for the shareholder, although it does have some significance for the distribution of index ETFs. One of the traditional functions of the mutual fund transfer agent is to keep track of the sale
