Fidelity Enhanced Index Funds (EIFs) are set to undergo a conversion to Exchange-Traded Funds (ETFs) this November.
For those who have received the August email notification or are simply curious about the transition, here’s a comprehensive breakdown of what this means for you.
Background: The Fidelity Conversion
Fidelity, a renowned investment management company, is converting its Enhanced Index Mutual Funds into ETFs.
This switch prompts questions about potential impacts on investment strategies, especially for those holding these funds in retirement accounts (Roth IRA, traditional IRA, etc.).
My Perspective on the Transition
As we discuss Fidelity’s move to change their Enhanced index mutual funds into ETFs, I’ve been giving this quite a bit of thought.
Here’s my personal take on the matter.
1. Automatic Investment
One thing that’s been on my mind is how to automate buying ETFs. It’s a bit trickier compared to mutual funds, which are easier to set on autopilot.
On the Fidelity platform, fractional shares for ETFs are available, but automatic market purchases aren’t currently supported, at least not for ETFs. Automatic investment is a feature only for mutual funds.
This transition might call for a more hands-on approach to managing investments.
2. Finding Comfort in Fund Similarities
It’s reassuring to note that the difference between mutual funds and ETFs may not be as stark as it seems. This conversion may not have a significant effect on our investment strategies.
3. ETF Advantages
I’m entirely on board with the benefits of ETFs. They offer the flexibility to buy and sell instantly. This differs from mutual funds, where trades only get executed at the closing of the current trading session or the next.
ETFs can also handle taxes in a more favorable way than mutual funds.
When it comes to IRAs, taxes work even better. Transactions inside an IRA usually don’t lead to immediate tax consequences. In a Roth IRA, your gains are tax-free.
As Fidelity prepares for this switch, I’m keeping an open mind. While there might be some adjustments in how we automate and deal with taxes, most of us holding these funds in IRAs likely will feel a small impact.