Same fund in ETF and investor share, different expense ratio?

Question

I'm looking at Vanguard 500 Index fund. There are three different options.

Admiral share (VFIAX) for people who has $10,000+, and the expense ratio is 0.05%.

Investor share (VFINX) with minimal investment of $3,000, and the expense ratio is 0.17%.

Finally, ETF version (VOO), which does not seem to have minimum purchase requirements, but still have low expense ratio of 0.05%.

My question is based on the expense ratio and minimal fund required, ETF seems the best. Are there circumstances people will choose top two options?

Answer 1

A few reasons why people might choose mutual funds over equivalent ETFs:

• If you're new to investing, you might not know about ETFs which only came about in the 1990s. Even if you do, they might be intimidating because they are traded like stocks. With mutual funds you just say how much you want and it is taken care of for you.
• In some cases, ETFs might incur commissions while mutual funds would not.
• You can't buy fractional shares of ETFs while you can for mutual finds, so buying ETFs might result in leftover, un-invested cash.
• If this is in a 401(k) or similar plan, you can probably only buy mutual funds and not ETFs.

There may be other reasons I'm not thinking of. I believe the first one is the major explanation, i.e. ETFs are still fairly new and slightly intimidating to people who don't put a lot of thought into investing.