Mutual Funds vs ETFs

[bizaro86]

Originally Posted by GP_Matt

I use a full service fee only broker. Some of my investments have to be run through a full service broker, or at least life is much easier if they are.

If it's not too personal of a question, would you mind sharing general terms of what type (asset class) of investments you're talking about with this comment?

[GP_Matt]

Putting shares in a private company into an RRSP and now the TFSA.
There were a lot of hoops to jump through and the guy I work with had already done all the work for a coworker.

[Slava]

Originally Posted by macker

This is something you should be able to work out with your discount broker. You shouldn't be paying fees in this manner

How do you not pay fees for the buy? I know you can probably set up a DRIP for the dividends, but it is true that if you buy every month you pay every month as far as I know.

Some brokerages set you up so that you don't buy until you have $1000, but then the point of dollar cost averaging is lost.

[macker]

I think there is at least three discount brokers that offer commission free ETF trading. Virtual Brokers, Questrade and Scotia I-Trade and all of them have a large selection of commission free ETF's. You could buy a basket of them monthly, or quarterly etc. This way you have the best of both worlds with lower MER's than mutual funds and no commissions and dollar cost averaging by using small increments on a regular basis. Also if your account is over $15,000 you should have no annual fees/no low activity admin fees with the above.

[CarlW]

Originally Posted by Slava

The seg fund has a lot of differences again though; one being that they can flow capital losses through to investors as well as capital gains. A mutual fund can't do that. There are also numerous estate planning and creditor protections afforded to segregated fund holders that are not available to mutual fund investors. Again, yes the MER tends to be higher (they aren't always), but if you have specific needs that you are addressing then there can be a lot of value to that.

Yes, most people tend to like that they have more creditor protection (as in actuality it is an insurance product) and many favour them for estate planning. There is also different regulation of Segs compared to Mutual funds due to it being an insurance product.

Segs also have nominal shares compared to the actual shares of a mutual fund, so you don't actually see the increase in shares like you would in a mutual fund though any increase in value is still reflected. I actually know a couple of people that don't like this and actually want to see the physical increase of shares on their statement.

[rd_aaron]

Originally Posted by Slava

Oh, and another major consideration is that mutual funds do things from a tax perspective that ETFs can't match. For example converting interest income to capital gains or dividends. Sheltering investment income entirely from taxation each year and that sort of thing. Paying a higher fee to save a huge amount on taxes is entirely worth it.

Can you expand a bit on the bolded? How does a mutual fund do that?

[Slava]

Originally Posted by rd_aaron

Can you expand a bit on the bolded? How does a mutual fund do that?

Its not just any mutual fund (and to be honest very few if any from the banks can do it). There are funds that you can buy though where they are structured as a corporation so they write expenses off against interest income, or use derivative contracts to make things flow as capital gains.

There is another process where investors can specify what income they want to receive, if any. So lets say the return was 7%. You can elect to receive that as dividends, capital gains, return of capital or pure compound growth. Its up to the investor to make that election, and while the MER is higher than an ETF its a benefit that can be completely worth paying for.

This type of tax planning advice is far better than just buying an ETF "because its cheap" IMO, which is a biased opinion.