ETFs have 2 main types of fees:
- Trading commissions – Like a stock, you will usually pay a commission to the investment firm every time you buy or sell an ETF. Consider how these costs will affect your returns if you’re planning to make frequent purchases or trade often.
- Management fees and operating expenses – Like a mutual fund, ETFs pay management fees and operating expenses. This is called the management expense ratio (or MER). MERs for ETFs are usually lower than those for mutual funds in the same class. They are paid by the fund, and are expressed as an annual percentage of the total value of the fund. While you don’t pay these expenses directly, they affect you because they reduce the fund’s returns. This can add up over time.
Before you invest, read the ETF’s prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition or its summary disclosure document to understand the fees. You can find these documents on the ETF manager’s website. You can compare fees and performance online at websites like Globefund and Morningstar.
Like a stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition, you pay a commission every time you buy or sell an ETF. Like mutual funds, you pay management fees and operating expenses for ETFs. CommissionsCommissions What you pay to a broker or agent for their services. Often called a “sales commission”. For example, you pay a fee to someone who buys or sell stocks or real estate for you.+ read full definition and management fees and operating expenses affect you because they reduce the fund’s returns.