During the past weeks, I noticed that I was unsure about the actual structure of VTSAX since there is a lot of misleading information out there. So I wondered, is VTSAX an index fund, an ETF, or a mutual fund?
VTSAX is a no-load passively managed mutual fund. It is managed by Vanguard and shares are sold directly to investors. However, VTSAX has a very low expense ratio of 0.04% which makes it more similar to an ETF in that regard.
So, now that you’ve got the basic answer to your question, why not have a closer look at what makes mutual funds uniquely appealing to some investors.
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Why VTSAX is an uncommon mutual fund
Structurally VTSAX is a mutual fund but in many ways it behaves more like an ETF. As we can see in the overview below VTSAX shares just as many typical characteristics with common mutual funds as with industry ETFs:
| VTSAX | Mutual Funds | ETFs |
| Bought/Sold once per day | Bought/Sold once | Bought/Sold throughout day |
| Priced once per day after market close | Priced once | Prices fluctuate throughout day |
| Passively managed | Actively managed | Passively managed |
| Low expense ratio | High expense ratio | Low expense ratio |
- Trading Times: Mutual funds like VTSAX are only bought and sold once a day. This does not mean that you have to wait for a specific time of day to place your trade, but all trades will only be executed once a day. In contrast to this, ETFs are actively traded throughout the day like stocks.
- Pricing: VTSAX and other mutual funds are also only priced once a day. Meaning, the price you pay for VTSAX will always be the end-of-day price. With ETFs, prices fluctuate throughout the day. These two facts combined make ETFs generally more appealing for investors looking to maximize tax-loss harvesting.
- Type of Management: Typically, mutual funds will be actively managed, but this is not the case with VTSAX. Since VTSAX is passively managed and follows an index rather than a manager’s fancy it behaves more like an ETF in this regard.
- Expense Ratio: In terms of the expense ratio VTSAX is also more like an ETF than a mutual fund. The industry average mutual fund expense ratio is 0.63% according to a study conducted by Vanguard and VTSAX’s fees of 0.04% falling significantly short of that – more like an ETF.
Lastly, mutual funds tend to be less tax-efficient than ETFs due to the buying and selling of shares at the end of each day. ETFs are able to curb the capital gains tax since shares are mostly just exchanged between buyers and sellers, allowing the index fund to maintain a stable base of assets.
Now that we have established that VTSAX is indeed a mutual fund – although be one that behaves and is managed more like an index fund – we’ll see if VTSAX also can be considered a no-load fund.
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What is a mutual fund anyway?
Essentially, a mutual fund is a financial vehicle that pools money from many investors, uses that money to buy securities, and distributes any returns back to the investors. Typically, mutual funds are actively managed, meaning, the fund manager decides which stocks to buy and sell at any given time. This way he hopes to outperform the market (a fallacy for 99% of all funds).
VTSAX, however, is a passively managed fund. There is no manager picking and selling stocks. Instead, VTSAX tracks the total stock market index which includes around 3,600 companies of the U.S. stock market.
Is VTSAX a no-load mutual fund?
VTSAX can be considered a no-load mutual fund since it is bought and sold directly from the issuing company – Vanguard – without commission or fees.
You can buy VTSAX directly from Vanguard and there are no fees associated with the purchasing or selling of shares. The only fee you’ll ever pay for VTSAX is the expense ratio of 0.04% which is charged for the maintenance and administration of the fund itself.
There is also a $3,000 minimum investment. After you have fulfilled this requirement once, either by investing a lump sum or by converting your existing holdings of VTI – you will be able to invest subsequently with a minimum of $1.
Conclusion
As we have seen VTSAX is a passively managed, no-load mutual fund.
But what implications does this have for you and me as a private investor striving to maximize our returns? Should you convert all your VTI holdings to VTSAX?
For retail investors, the official structure of the financial product only plays a secondary role. First and foremost, it matters what the investment process looks like and which you feel more comfortable with. I’ve recently written an article about Vanguard’s Admiral Shares which goes into a bit more detail and discusses whether they are worth the additional 0.01% in fees.
Other than that, the only real issue that should concern you is tradability. The performance will obviously be equal given that VTSAX and her correspondent ETF version VTI hold pretty much the exact same stocks. The only thing you will notice in your personal investment is the option to only buy shares once a day. Furthermore, you also have the additional feature of automating your investments on a monthly basis.
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