Which is the most Cost effective fund?

CFA Level III Equities
#1

If a client is cost sensitive, which choice is most suitable for index portfolio structure?

a) Mutual fund

b) ETF

c) Pooled fund

pls explain why?

#2

Mutual fund:

  • Con: Shareholder level accounting. (more expenses).
  • Taxes impact

ETF:

Pro:

  • Fund level accounting - less expense.
  • more tax efficient.
  • Provides ETF shareholders with more protection due to providing liquidity.

Con: Higher license fee,

Pooled Fund:

pro: Extremely low cost product. Total expenses may be as low as a few basis points. In an active market the revenue from security lending might exceed portfolio management and custody fees.

Con: Not available usually to an individual investor.

To answer your question:

Individual investor -> ETF

Institutional Investor -> Pooled Fund