Pros/cons/differences between index fund vs ETF

[Mrblobby]

Hello.

After reading lots of stuff about the differences between index funds and ETF, I'm finding myself a bit confused with some lingering thoughts/questions.
I'm guessing that if I have such questions, there's probably a decent chance that others do too.

The main difference I can see is that I can buy ETF in real-time, and the index funds are calculated once a day.
The aim is long term investment (well, at least 5-10 years).

I'm just wondering which might be better for my yen and keen to hear thoughts from other people here in Japan.

Thank you.

[RetireJapan]

Many websites with a focus outside Japan recomment ETFs as being better.

In Japan, mutual funds have a few advantages for the long-term investor:

-can easily automate purchases
-no purchase fees/very low management fees
-can reinvest dividends internally, making them more tax-efficient
-only option in iDeCo and tsumitate NISA

The advantage of ETFs is mainly going to be a wider selection of options, especially in overseas markets.

Of course, US investors should generally avoid non-US mutual funds.

[adamu]

Some info here https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

[Mrblobby]

Thank you!

[7-seasons.com]

I have been going along with the generally top-rated or low expense mutual funds for a few years now and found they are convenient with the auto-purchasing for automating finances. But I finally happened to discover late here now that there are rough equivalent ETFs that seem to be hands down no contest 'better.' That is to say, why the hell would we buy the mutual fund over the ETF?

Here are some mutual funds that I have going on right now:
三菱ＵＦＪ国際－ｅＭＡＸＩＳ　ＮＡＳＤＡＱ１００インデックス NASDAQ
ニッセイ－＜購入・換金手数料なし＞ニッセイ外国株式インデックスファンド Total Market
三井住友ＴＡＭ－ＳＭＴ　ゴールドインデックス・オープン（為替ヘッジなし) Gold
三菱ＵＦＪ国際－ｅＭＡＸＩＳプラス　コモディティインデックス Commodities
三菱ＵＦＪ国際－ｅＭＡＸＩＳ　Ｓｌｉｍ　先進国債券インデックス World Bonds

But recently, I started digging into some ETF equivalents, examples:
MAXIS NASDAQ100 ETF (2631.T) 0.42% yield, no fee
Japan Physical Gold ETF (1540.T) No yield, no fee
1699 ＮＦ原油先物 Oil No yield, no fee
NEXT FUNDS International Bond FTSE World Government Bd Idx ex Jpn UnHdg ETF (2511.T) 2.75% yield, no fee

Looking into some comparisons,
1) the Nasdaq 100 mutual fund fee is 0.44% with no dividend compared to 2631 with a 0.42% yield and no fee - wtf!
2) gold mutual fund above 0.525% - 0.675% fee versus 1540 etf with no fee
3) commodities mutual fund 0.9% fee (because I couldn't find a better mutual fund for commodities, small selection) versus for example the 1699 oil etf with no fee (major holding of commodity funds is energy, proxy).

To summarize it seems the only benefit to mutual funds are the size/liquidity and auto-investing with tsumitate, while the etfs out there have better yield and/or fees, can be bought/sold on the same day (versus ~1 week to clear for mutual funds), but generally have lower volume/liquidity despite my picking the more liquid ETF versions above.

Let me know your thoughts! Is there some catch that I am missing or should we be shifting all to ETFs and getting out of mutual funds?

[TokyoWart]

Let me know your thoughts! Is there some catch that I am missing or should we be shifting all to ETFs and getting out of mutual funds?

I think there are other threads on RetireJapan which discuss how mutual funds here can automatically reinvest dividends in ways that are not available to ETF's but the basic issue for investors and the financial industry is that an ETF is much less expensive to run and administer for the company behind it as well as (depending on the country) offering some more tax efficient solutions to the problem that mutual funds have that all investors in a mutual fund are subject to the disruptions caused by those who quickly trade in and out of a mutual fund in ways that an ETF is able to partially avoid because of the way ETF shares are created and destroyed by other market participants. In my opinion the main real advantage that a mutual fund has over an ETF is that a mutual fund can close to new investors so that it is not overwhelmed by new money which exhausts the potential of an exceptional active fund manager who picks smaller, less liquid stocks that can have valuations distorted by over-buying. There's no way for an ETF to do that but because the active manager who really beats the market is an elusive creature and most fund investors are best served by broad market index funds, over time I expect ETFs to replace mutual funds as the preferred investment vehicle.

[northSaver]

Let me know your thoughts! Is there some catch that I am missing or should we be shifting all to ETFs and getting out of mutual funds?

I have only looked at one of the ETFs you listed - 1540 Physical Gold - and can state that the trust fee is definitely not zero. It is 0.4%:

https://www.jpx.co.jp/english/equities/ ... 01-10.html
https://myindex.jp/data_f.php?q=1540

Perhaps you are seeing the fee as "--%" on some sites? This does not mean zero, it means they don't have the information. I strongly suspect the other ETFs you listed are not 0% either.

[captainspoke]

Maybe some confusion as to 'fee'?

On the one hand, there may be no purchase/sale fee (no 'load' in US terms).

On the other, there is what I would call an expense ratio (or management fee, perhaps including the 12b-1 fee in US terms). Yearly, and ongoing.

[zeroshiki]

I looked into the eMaxis ETFs before and I'm pretty sure they do dividends which is not good in a NISA since it eats at your allowance.

https://www.nikkei.com/nkd/fund/dividen ... e=03313201

[northSaver]

Maybe some confusion as to 'fee'?

On the one hand, there may be no purchase/sale fee (no 'load' in US terms).

On the other, there is what I would call an expense ratio (or management fee, perhaps including the 12b-1 fee in US terms). Yearly, and ongoing.

Yeah, could be. But the gold fund he mentioned has a fee of 0.525% to 0.675% per year (a bit higher than the ETF) and a purchase fee of 0% if bought online, at least at my broker SBI:
https://site0.sbisec.co.jp/marble/fund/ ... =26431917B

So I still think he's mistaking a fee of "--" to mean "zero", rather than "unknown". Is this a common way of designating something as unknown - or not available - in Japanese, by the way? It's a bit confusing