ETF ACADEMY: High Cost of Mutual Funds- Part 2

We first touched on the high cost of investing with Mutual Funds in this March 2008 post. Now we’ll show you how to save over $12,000 of expenses on a $100,000, 5-year investment by using ETFs in place of mutual funds.

In today’s WSJ, there is an excellent overview of investment options available to investors looking for exposure to India entitled Heading East.

One of the major differences between the products is the cost.

Per the article, here is the cost of investing in India across the different choices, using $100,000 as the benchmark investment:

Mutual Funds

  • Eaton Vance Greater India Fund: 2.14% or $2,140 per year

  • Franklin India Growth Fund: 2.30% or $2,300 per year

  • JP Morgan India Fund: 2.00% or $2,000 per year

  • Greenwich Advisors India Select Fund: 2.35% or $2,350 per year

Mutual Fund Average 2.20% or $2,200 per year

ETFs and ETNs

  • iPath MSCI India Index ETN (NYSEArca: IPN) 0.89% or $890 per year

  • WisdomTree India Earnings ETF (NYSEArca: EPI) 0.88% or $880 per year

  • PowerShares India Portfolio (NYSEArca: PIN) 0.78% or $780 per year

ETF/ETN Average 0.85% or $850 per year

Over a 5 year period, assuming no change in asset value, you would save $6,750 by going with an ETF or ETN. You would save even more as the value of the investment grows.

To be fair, we should add in the $12 broker commission to the cost of establishing the ETF position and the sales loads associated with the Eaton Vance and Franklin Funds. On a $100,000 investment, you would save up to an additional $5,738 for a total of $12,488 in this example.

Did we mention that the mutual funds all have minimum investments ranging from $1,000 to $2,500? The minimum for the ETFs and ETN – none.

For more information, see the iPath, WisdomTree and PowerShares websites.

Also, see our posts on investing in India with ETFs here , here and here.

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