For all practical purposes as an investor what matters is
For index fund
- what’s the entry /exit spread
- What’s the TER
- What’s the tax advantage from WHT perspective
- What’s the stamp duties (zero)
- Other commissions / fees
For ETF
- what’s the spread
- what’s the TER
- What’s the tax advantages
- What’s the stamp duties
- Other commissions / fee
So it’s not about index fund vs ETF. It’s about which fund vs which ETF.
From WHT perspective (applicable to US and Japan), I believe only pension funds have possibility to get special treatment. That’s why all providers use pension funds. ETFs don’t have that privilege and hence no provider is using them
For Emerging markets -: both are equivalent from tax perspective because there is no tax advantage for either one of them. So it comes down to spreads, duties & costs and TERs. Nothing else matters.
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Now let me try to make a comment on Fp‘s article about income vs capital gains in pension assets. Their comment might not make sense if we look at this in isolation.
BUT if you think about asset allocation. And let’s say your total assets are X (in pension assets) + Y (in taxable accounts).
It is always better to have high INCOME assets in X and high capital gains assets in Y. This is because pension assets are taxed at withdrawals while income in Y assets are taxed annually.
I tried to do this simulation for myself for IBKR + 3a accounts and concluded that if I want to hold any bonds, then they should be in 3a plans. See here. So all my bonds are actually in pension assets.
For someone who doesn’t hold any bonds, they might want to consider VTI in IBKR while SPI in 3a instead of other way around. Reason being SPI has high dividend as part of return while VTI comes with lower proportional. These are just examples but hope the directional point makes sense
I think this is what they are trying to say. But they didn’t really explain it very well.