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Which is better for Pillar 3a, ETFs or index funds?

There is no general answer to this question. The advantage of Swiss index funds is that they are exempt from Swiss stamp duty and, depending on the share class, are withholding tax-neutral or exempt from withholding tax. One advantage of ETFs is their tradability on the stock exchange, but also the fact that they are also widely used outside Switzerland and are very cost-efficient.

For this reason, we use index funds for some important investment categories in Pillar 3a. However, tax factors are only one factor that needs to be taken into account. Equally important are the ongoing costs (TER) and the bid/ask spreads of the ETF or, in the case of index funds, the issue and redemption premiums.

For the greatest possible flexibility in individualizing the investment strategy, we also supplement our investment universe in Pillar 3a with a broad selection of ETFs, as the range of index funds is limited compared to ETFs for certain asset classes. It should also be noted that, unlike the TER, stamp duty is not an ongoing cost factor – it only applies to purchases and sales.

It is also sometimes wrongly argued that index funds do not incur bid/ask spreads. However, this is a misconception, as professional index funds charge an issue or redemption premium for every transaction in order to protect existing investors in the index fund from the trading costs incurred. These are referred to as issue or redeem spread or similar in the respective factsheets of the index funds and are often comparable with the bid/ask spreads of ETFs.

More questions in "Pillar 3a"

How much does True Wealth's Pillar 3a cost?Why is True Wealth able to offer a securities-based Pillar 3a free of charge, while other market participants charge for it?Will I get the Swiss withholding tax on Pillar 3a investments back?How can True Wealth offer an interest rate of 1.25%?The cost regulations of the pension foundation mention an administrative fee. Why does the website say that the offer is free of charge?Is True Wealth planning to increase fees in the future?Where can I find the tax return documents?How large are the FX spreads on Pillar 3a from True Wealth?How often is the interest paid out and where can I see this?Pillar 3a processing dates over the 2024/2025 holidaysCan I also transfer my 3a accounts from other providers to True Wealth?How much money should be in each Pillar 3a account?For what reasons can Pillar 3a be paid out early?Can I have my Pillar 3a transferred from True Wealth to another provider?When can I liquidate my Pillar 3a?How can I withdraw my Pillar 3a?What happens to Pillar 3a in the event of death?How is the Pillar 3a payout taxed?By when do you have to withdraw the Pillar 3a?Does True Wealth's staggered withdrawal system guarantee me a maximum tax deduction?Where can I see how my Pillar 3a assets are distributed among the various accounts?What is the maximum amount I can pay into Pillar 3a in 2024?I am self-employed and can pay more than CHF 7’056 into my Pillar 3a. Is this possible with True Wealth?I already use True Wealth's Pillar 3a and have paid in the maximum annual contribution. Now I would like to transfer an additional amount from another provider to True Wealth. How does this affect the staggering of the accounts?What is Pillar 3a?Why should you choose True Wealth's Pillar 3a?What is Pillar 3b?Is there also a Pillar 3a app?How long does it take to open my Pillar 3a with True Wealth?Is there a minimum contract term with True Wealth?Can I also use True Wealth's Pillar 3a without investing in free asset management?At what age can I start paying into Pillar 3a?What are the advantages of holistic asset management and why is only one investment strategy possible?Is my money safe and does the deposit guarantee also apply to my Pillar 3a assets?How exactly does True Wealth's auto top-up system work?Does True Wealth also use index funds exempt from withholding tax in Pillar 3a?Why are past returns not an indicator of future returns?If True Wealth already opens at least five 3a accounts and I have other 3a accounts with other providers, isn't that a problem?How often does the rebalancing of the Pillar 3a account take place?Does True Wealth also use fractional shares?Can I hold the same number of shares and the same amount of foreign currency in my Pillar 3a as in my free assets?What is pooling and netting and how does it benefit me as a client?Does True Wealth engage in securities lending in Pillar 3a?I want to be 100% invested in cash for the moment. How can I adjust my investment strategy?Where can I view the regulations of the 3a Digital Pension Foundation?Where is the registered office of the Pension Foundation 3a Digital and how is it supervised?How is True Wealth regulated and where are my pension assets held?

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