Skip to Content
Our Picks

These Mutual Funds Give ETFs a Run for Their Money

We take a look at domestic and foreign core offerings that compete on the cost and tax-efficiency fronts.

Mentioned: , ,

Two of the main benefits that exchange-traded funds offer are tax efficiency and low-cost exposure, particularly to slices of the market on which traditional index funds are less likely to focus.

But ETFs don't always have a decisive edge over traditional mutual funds on these fronts. Sometimes, a mutual fund may be cheaper than an ETF tracking the same index, and you may not have to pay a commission to buy and sell the traditional mutual fund. (Of course, you may not have to pay a commission to buy and sell an ETF, either, given that so many brokerage platforms are offering free trades.) Check out  Morningstar's Cost Analyzer tool to compare costs and trading commission fees to determine how much you'd save by investing in an index fund versus a comparable ETF.)

And while ETFs have mechanisms that can lead to greater tax efficiency than traditional mutual funds, they won't automatically lead to lower tax bills, as Vanguard chief investment officer Gus Sauter points out in this video.

Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.