# ETF vs. Retail Fund?



## matt_50 (13 January 2010)

I have been looking at the vanguard 'Australian shares' Index Fund and ETF, both track the same index and use the same underlying strategy (I believe)

I was wondering what the tax differences were between the two methods? If they are both using the same strategy,  is there any difference at all?

Why are the fees so much less for the ETF equivalent?

I understand how fees are taken with the Retail fund, but how exactly are they taken with an ETF? I understand they could subtract them from your dividend, but what if hypothetically there was no dividend to subtract it from? how would they claim their fees? take shares off of you?

Anyone have any general opinions on which is the best strategy? Is it worth the extra fees for more regular dollar cost averaging?


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## So_Cynical (13 January 2010)

Are they actually different funds? i always thought you could either buy on market or buy through the fund...at least i thought that's how it worked with the index tracking exchange traded funds :dunno:

There's a school of thought that says regular dollar cost averaging is a bad idea, and i tend to agree...hands off investing is what got the storm, and so many managed funds investors into trouble...and that's brings us to the best thing about index ETF's...you have almost instant total control over your investment.


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## Bill M (13 January 2010)

matt_50 said:


> I have been looking at the vanguard 'Australian shares' Index Fund and ETF, both track the same index and use the same underlying strategy (I believe)
> 
> I was wondering what the tax differences were between the two methods? If they are both using the same strategy,  is there any difference at all?
> 
> ...




Hi Matt, I have been invested in both and am still invested with the retail fund.

Generally the tax statements will be similar as they are basically the same product and they will send you a full tax statement each year.

The management fees for ETF being lower is probably so that it can compete with other similar funds such as STW. If Vanguards ETF fee were higher than say STW then less people would buy Vanguards ETF so they must compete. Also you will have to pay brokerage for entries and exits into ETF's so that actually brings up the price all up.

For me I try to avoid fees or keep them down as much as possible. So I would be inclined to lean towards the ETF. On the other hand the retail fund is a no brokerage buy or sell fees and you can BPay funds in at anytime. The problem is that if markets start crashing it could be 3 days or so before your sell instructions are acted upon, this could result in you selling for much lower prices than what you wanted.

The only reason I still have the Vanguard retail fund is the difficulty of a quick sell. It frightens the hell out of me that the market could drop 1,000 points before my instructions are acted upon, however eventually I will probably switch to the ETF when the markets are more stable.

Good luck with what ever you choose, cheers.


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## awg (13 January 2010)

Good answer from Bill

Although ultimately the two products have many similarities, I think the products reflect a slightly different mentality.

Vanguard Index is designed for long term buy&hold, dollar cost averaging etc

STW can be and is, day traded.

The 3 day sale issue is theoretically important in the instance of a market collapse.

I myself do not fully understand the tax distribution structure with respect to dividend imputation in particular, never been able to fully clarify this issue to my complete satisfaction, other than the advice I have recieved is they are the same.

I suggest you read the relevant disclosure/info docs on their websites, these outline fees and other details

own STW, previously held Vanguard Index fund


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## matt_50 (13 January 2010)

Thanks for the help guys. At the moment I think I'm leaning towards an ETF. it will be my first trade in shares, think it will be a good starting off point.


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## ers_6 (31 March 2010)

matt_50 said:


> Thanks for the help guys. At the moment I think I'm leaning towards an ETF. it will be my first trade in shares, think it will be a good starting off point.





Hi Matt, how did you go with this? 
I have been looking into it and came across your thread... did you take the plunge? if not why not?


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## Bill M (11 September 2010)

Bill M said:


> The only reason I still have the Vanguard retail fund is the difficulty of a quick sell. It frightens the hell out of me that the market could drop 1,000 points before my instructions are acted upon, however eventually I will probably switch to the ETF when the markets are more stable.




Just a quick follow up. I wanted to sell my unlisted ASX 300 Vanguard Fund for sometime and the 100 point plus close on the DOW last Friday prompted me for a safe get out time. My thinking was that on Monday we should go up a bit and hopefully there won't be any nasties on Tuesday and there wasn't.

I sent away the withdrawal form on Saturday. They received it Tuesday and applied Tuesdays withdrawal price. The funds were in my bank account today Saturday (exactly 1 week). 

I withdrew it for 2 reasons, the unlisted managements fees were .75% (up to 50k) of the fund and the listed  ETF fees are only .27%. I also don't like not knowing my withdrawal price, I had to guess up days. I intend to use the funds to repurchase VAS on the market and that way I can get in and out at the price I want. Good luck to all investors.


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## poverty (12 September 2010)

I've been thinking about investing with vanguard index for a while and this is what I think is the best way:

Start with the retail fund so I can BPAY in small amounts regularly without crippling brokerage charges, then once I get the account up to a more significant amount, say 20K, I could withdrawal 15K to buy the ETF for the lower ongoing fees while still continuing with regular deposits into the retail fund.  That way you get the best of both.


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## Judd (17 September 2010)

With EFT's just be aware of counterparty risks.  They have yet to be fully stress tested (in theory or in actual.).


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## GG999 (1 October 2010)

Judd said:


> With EFT's just be aware of counterparty risks.  They have yet to be fully stress tested (in theory or in actual.).




What do you think of the risks?


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## jalicia18 (22 November 2010)

However, a closer look shows that index funds are still the top choice for the majority of retail index investors. Here we will look at the reasons why ETFs have become so popular and analyze whether they make sense - from a cost, size and time-horizon standpoint - as an alternative to index funds.

*Comparing the Advantages*
Because ETFs are flexible investment vehicles, they appeal to a broad segment of the investing public. Passive investors and active traders alike find the features of ETFs attractive.

*Comparing the Costs*
ETFs and index funds each have their own particular advantages and disadvantages when it comes to costs associated with index tracking (the ability to track the performance of their respective index) and trading. The costs involved in tracking an index fall into three main categories. A direct comparison of how these costs are handled by ETFs and by index funds should help you make an informed decision when choosing between the two investment vehicles. 

Non-tracking costs can also be divided into three categories: management fees, shareholder transaction costs and taxation. First, management fees are generally lower for ETFs because the fund is not responsible for the fund accounting (the brokerage company will incur these costs for ETF holders). This is not the case with index funds.


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## dhukka (22 November 2010)

jalicia18 said:


> However, a closer look shows that index funds are still the top choice for the majority of retail index investors. Here we will look at the reasons why ETFs have become so popular and analyze whether they make sense - from a cost, size and time-horizon standpoint - as an alternative to index funds.
> 
> *Comparing the Advantages*
> Because ETFs are flexible investment vehicles, they appeal to a broad segment of the investing public. Passive investors and active traders alike find the features of ETFs attractive.
> ...




Great stuff jalicia, do you work for INVESTOPEDIA.com? You know you can just post a link to their stuff, unless of course you want to make out it's your own?


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## yogiebear (23 November 2010)

The main reason for the difference in the cost is due to the structure and legal requirements of running an unlisted investment trust.

Running an ETF is alot easier to do and therefore the cost is less even if they are essentially the same thing.

Hope this helps.


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## dyna (11 September 2021)

Inflows of $ 20 Billion into hugely popular E.T.F's for the past year. F.U.M. are now at $125 Billion ( Up 75% in a year ) Best of all : the fees....just 20 basis points or 0.20 % .
By contrast :  the managers of the poorly performing $ 1 Billion  L.I.C , L 1 Capital Long- Short Fund , scooped up $ 128 Million in performance fees. Only $ 60 Mill of that was paid out during the year, the rest has to be invested back into their own L.I.C.
Still that's over 6 % p.a. for doing....well, bugger all, it seems.


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