BPIF, ETF and mutual fund: three forms of one idea

All three forms solve the same problem — giving access to a set of assets in one purchase. The differences between them are practical.

The open-ended mutual fund

Units are bought and redeemed through the management company rather than on an exchange. The price is struck at the end of the day from net asset value. Transactions take days.

The exchange-traded mutual fund (BPIF)

The Russian form of an exchange-traded fund. Units trade on the exchange during the day like any security. A market maker keeps the price near fair value — The market maker: who holds the book when nobody is trading.

The ETF

The international form of an exchange-traded fund. Mechanically close to a BPIF; for a Russian investor the key difference turns out to be not the mechanics but the jurisdiction and the custody chain — Restrictions and infrastructure risk: how it differs from market risk.

What to look at

The holdings and the rules for forming them — they live in the fund's trust management rules, not in marketing material.

The management fee: it is deducted daily from assets and never appears in a broker statement — Fees: small numbers that decide the outcome.

Net asset value and tracking accuracy — Tracking error: how far a fund trails its index.

The tax advantage

Transactions inside a fund create no taxable base for the unit holder — often that outweighs the fee: Tax on funds: where the relief works and where it does not.