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The polite spin on the exchange-traded funds offered by Toronto-Dominion Bank is that they have had an underwhelming impact on the marketplace so far.

The cold, hard truth is that TD Asset Management’s family of ETFs ranked 20th out of 35 firms as of the end of September with $240-million in assets, which is puny for a bank with TD’s big profile. This would be more of an issue if TD didn’t have something better than ETFs for a lot of investors.

The TD e-series of index mutual funds are not as cheap as the lowest-cost ETFs, but you can buy and sell them without brokerage commissions that can run as high as almost $10 per buy or sell. When you factor this into the total cost of ownership, these e-series funds can be cheaper to own for smaller accounts.

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One downside to e-series funds was that you had to invest in them online via TD or through its online brokerage, TD Direct Investing. But some recent changes to e-series mean they’re now more widely available from other online brokers through their online mutual fund inventories. You may be able to buy an e-series fund like any other mutual fund.

These same changes will result in modestly lower fees for e-series funds. For example, the management fee for TD Canadian Index-e will fall to 0.25 per cent from 0.3 per cent. This means a similar decline in the management expense ratio, which is now 0.32 per cent. Management fees represent the bulk of the costs that go into calculating a fund’s MER.

The TD Canadian Equity Index ETF (TTP) has an MER of 0.06 per cent, which is at the low end for this category. But if you were to make 12 monthly purchases of this ETF in a year at TD Direct Investing’s standard stock and ETF trading commission of $9.99, your annual cost would be just less than $120. On a $25,000 account, that’s equivalent to a fee of 0.48 per cent. Add the 0.06 per cent MER for TTP and you’ve got a fee drag of 0.54 per cent. You’re better off with TD Canadian Index-e.

With larger accounts, say $50,000 or more, the advantage shifts to TTP. But a lot of people start with amounts of less than that – with a new tax-free savings account, for example. The minimum investment for e-series funds is just $100.

A few online brokers offer some degree of no-cost ETF trading, including National Bank Direct Brokerage, Questrade, Qtrade, Scotia iTrade and Virtual Brokers. At these firms, low-fee ETFs might be the better choice than e-series index funds. But if you’re a client of a firm with $10 stock trades and you want to start a low-cost index portfolio from scratch, TD e-series look like a better pick.

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