As of January 31, 2021, Vanguard is one of the world's largest asset management companies, with over $7.2 trillion in AUM. Low-cost mutual funds have made them a popular alternative for investors. 1 With the addition of exchange-traded funds (ETFs), the Vanguard Group has become one of the most popular providers of both investing products.

All of Vanguard's index mutual funds are matched with an ETF. Differences between the two products in terms of management style and returns might make each product more suited to various investors. A comparison of Vanguard's mutual fund/ETF fee ratios is necessary to make the most informed decision.

Vanguard Mutual Funds

Regarding Vanguard products, the mutual fund vs. ETF issue boils down to the amount of money invested. Aside from that, Vanguard provides a variety of shares, ranging from Investor Shares to Admirals Shares to Institutional Shares, all of which offer progressively lower cost ratios and, as a result, more remarkable performance in exchange for more significant minimum investments.

The minimum initial investment for Investor Shares in most Vanguard mutual funds is from $3,000 to $1,000, while some accept a $1,000 commitment. Index funds need a minimum of $3,000, while actively managed funds require $50,000, and certain sector-specific index funds require as much as $100,000 for lower-cost Admiral Shares.

Vanguard ETFs

ETFs are more adaptable; they may be purchased and sold at any time of the day for as little as one share, much like stocks. Vanguard has 76 ETFs available as of February 15, 2022, with share values ranging from around $49 to $406.4.

Even though ETFs often have lower cost ratios than mutual funds, investors must have a brokerage account to trade them. Brokerage commissions may be charged for ETF trading. A lot of things must be taken into account by investors when deciding between an ETF and a mutual fund.

Comparisons

The ability to trade shares is the primary distinction between mutual funds and exchange-traded funds. Only once a day, at the end of the trading day, does the price of mutual fund shares change. Trade orders are accepted at any time of day, but transactions are only executed at the close of business.

The Vanguard lineup's mutual funds and ETFs mostly follow a similar structure. Investors in ETFs and mutual funds pay capital gains taxes and dividend income taxes to the Internal Revenue Service (IRS). 6 You'll typically pay less tax with ETFs than with mutual funds because of how taxable events are handled in ETFs vs. mutual funds.

Vanguard ETFs vs. Mutual Funds: A Fee Comparison

The annual fee ratio for the Vanguard 500 Index Fund Admiral Shares was 0.04 percent as of April 29, 2021, with a minimum investment of $3,000 required. There was no minimum investment required to invest in the Vanguard S&P 500 ETF on the same date.

Investing $10,000 in Vanguard funds and ETFs will cost you $9 a year, on average, according to Vanguard's 2020 expense ratio report. As a reference, the industry average for other mutual funds and ETFs was 0.54 percent or $54 for every $10,000 invested yearly.

Investing with Vanguard may be an excellent option for both long-term and short-term investors because its products are among the most affordable and highly rated on the market.

How Do Vanguard Mutual Funds And ETFs Differ From One Another?

Both Vanguard's products are comparable in management style and return, but some differences might make each product more suited to a particular investor. ETFs are more flexible since they may be purchased and sold at any time throughout the trading session. Mutual fund shares are traded only once a day, but they can profit from economies of scale because of this.

Which Should Investors Choose: Mutual Funds Or ETFs?

A buy-and-hold strategy, or a trading strategy, should be determined by investors. ETFs may be a better option for investors looking for lower minimum investment amounts and greater control over transaction costs than mutual fund investments. On the other hand, ETFs do not allow investors to set up recurring automated contributions or withdrawals.

What Are The Tax Consequences of Mutual vs. ETF?

Investors pay taxes on capital gains and dividends in both mutual funds and exchange-traded funds. As opposed to mutual funds, ETFs approach taxable events differently; thus, your tax burden will be reduced if you invest in ETFs. ETF expense ratios are often lower than mutual fund expenses.

Summary

All of Vanguard's index mutual funds are matched with an ETF. The ability to trade shares is the primary distinction between mutual funds and exchange-traded funds. It is possible to buy and sell ETFs anytime or night, but this is not possible with mutual fund shares. There are several advantages to investing in ETFs versus mutual funds, including cheaper minimum investments and more control over transaction costs, for investors. On the other hand, ETFs do not allow investors to automate their investments or withdrawals regularly.