No sales loads, although brokerage commissions will apply. No high management and sponsor fees. Expense ratios are very similar between ETFs and open-end mutual funds. Both ETFs and open-end mutual funds provide low stock turnover, which in itself is tax efficient because capital gains are not realized. However, ETFs provide a tax advantage not available with mutual funds.
Mutual funds sell securities to cover redemptions creating capital gains.
ETFs transfer securities out to redeeming shareholders instead of selling the securities thus minimizing taxable capital gains. Proper investment diversification is intended to reduce the risk inherent in particular securities. It is the acquisition of a group of assets in which returns on the assets are not directly related over time. By containing the stocks in an index, an investor has a broader number of companies which gives a degree of protection in case the price of one company in the index goes lower. Exchange Traded Funds may be purchased on margin, generally subject to the same terms that apply to common stocks.