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All trading basics

Differences between ETFs and Traditional Mutual Funds

  • ETFs offer many of the advantages of index mutual funds, such as the ability to obtain exposure to broadly diversified asset classes through a single trade, combined with additional advantages that come from a fund that trades like a stock on an exchange.
  • ETFs can be a very cost-effective way to build a diversified portfolio.
  • There are a wide variety of ETFs out there, covering many sectors, asset classes and market capitalization.
  • Because of lower asset turnover ETFs tend to be more cost- and tax-efficient than traditional mutual funds.

 

The following chart summarizes the differences between ETFs and traditional mutual funds:
  Exchange Traded Funds(ETFs) Traditional Mutual Funds
Pricing Throughout the trading day Once per day using closing prices for fund net asset value
Short selling Yes – investors can hold long or short positions No – long positions only
Limit and Stop Orders Yes – investors can request their own price to execute any trade, however, there are no execution guarantees No – the only price available is the net asset value (NAV) per unit
Good-til Orders Yes – at Disnat and Disnat Direct, investors can leave an order open for
up to 30 days
No – any order entered will be traded on that day (or the next business day, if markets are closed).
Cost (MERs) Low – MERs are typically under 1% Varies – MERs are typically between 1.5% and 3%
Portfolio turnover Very low (leading to lower taxable distributions) Varies according to manager style (high turnover leads to high taxable distributions)
Marginable (ability to leverage) Yes – standard security margin rules apply Yes – maximum loan value of 50%
Disclosure of portfolio holdings High – holdings disclosed daily for most ETFs Low – holdings typically disclosed semi-annually

Source: Barclays Global Investors Canada Limited. Used with permission. Adapted for use by Desjardins Online Brokerage.