ER of 0.01-0.03

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
A_C_E
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ER of 0.01-0.03

Postby A_C_E » Fri May 19, 2017 4:51 pm

A friends employer started offering domestic large, small and international index funds through legal and general trust fund. A few questions:
1. The ER is 0.01-0.3. Seems way too cheap! Way cheaper than any competitor out there. What's the catch?
2. Do trust funds on 401k carry risks different from a mutual fund
3. Anything else one needs to know?
Thank you!

Whakamole
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Re: ER of 0.01-0.03

Postby Whakamole » Fri May 19, 2017 4:56 pm


Nate79
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Re: ER of 0.01-0.03

Postby Nate79 » Fri May 19, 2017 5:06 pm

1. Nothing.
2. No
3. No

This is not that uncommon. My 401k has an S&P500 index fund by Blackrock with ER of 0.02%.

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Majormajor78
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Re: ER of 0.01-0.03

Postby Majormajor78 » Sat May 20, 2017 7:56 am

Those trusts are perfectly legit.

I believe they are cheaper because they have less regulatory requirements. Basically they do not have to churn out prospectuses, not deal with retail investors, or "pay" dividends to the investors. The investor still collects the dividend but in a mutual fund the dividend is collected by the fund, distributed to the investor with applicable tax reporting to the IRS and is often then reinvested in the fund if this is the investors choice. Since these trusts only deal with institutional investors in qualified plans they can ignore the tax implications and immediately reinvest the dividends eliminating all the IRS fillings and paperwork. This eliminates quite a bit of administrative costs as well.

The only concern some people have is that you can not directly view the funds holdings in a prospectus. When was the last time you read an entire prospectus? These trusts are run by well established firms and are typically nice bit index funds. Wish I had access to one myself.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."

alex_686
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Re: ER of 0.01-0.03

Postby alex_686 » Sat May 20, 2017 8:06 am

Majormajor78, you are mostly right.

Majormajor78 wrote: Basically they do not have to churn out prospectuses ...
The only concern some people have is that you can not directly view the funds holdings in a prospectus.


They have to generate both prospectuses, annual reports, and quarterly reports. Annual and quarterly reports. While they have less details than a publicly traded fund they would have holdings.

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Majormajor78
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Re: ER of 0.01-0.03

Postby Majormajor78 » Sun May 21, 2017 6:53 am

alex_686 wrote:Majormajor78, you are mostly right.

Majormajor78 wrote: Basically they do not have to churn out prospectuses ...
The only concern some people have is that you can not directly view the funds holdings in a prospectus.


They have to generate both prospectuses, annual reports, and quarterly reports. Annual and quarterly reports. While they have less details than a publicly traded fund they would have holdings.

I may be wrong but if I am I'm not alone.

From the Boglehead wiki:

The CIT spells out the terms and guidelines under which the investments of the trust are managed in a Declaration of Trust (a mutual fund uses a prospectus). There are no annual or semiannual reports.


From an article in the Wall Street Journal ( https://www.wsj.com/articles/SB10001424 ... 1881550144 )
And CITs don't issue formal prospectuses, says Brad Huss, a lawyer specializing in employee benefits with Trucker Huss, a San Francisco-based law firm.


Hardly the most authoritarian of sources but I believe it. If I'm mistaken let us know and we can see about updating the wiki.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."


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