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Asked a question 3 months ago

ETF's vs Index fund: Where should Investor invest?🧐

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From a portfolio standpoint, index funds are restricted to mainly benchmark equity indices, whereas ETFs can cover a much broader range of securities and portfolios. Here are a few examples: 

  1. Index ETFs such as Kotak Nifty ETF
  2. Sector ETFs for FMCG, Pharma, Healthcare, etc.
  3. Commodity ETFs such as Gold BeeS, HDFC Silver ETF, etc.
  4. Bond ETFs such as Liquid BeeS. 

Long story short, ETFs offer more variety, generally have lower expense ratios and are listed on the exchange like stocks. You're better off investing in them regardless of your risk profile, duration, or anything else. 

Hope this makes sense.  

 

Every financial instrument has its own advantages and disadvantages. 

ETFs and Index funds - both provide the advantage of diversification, with very less intervention by fund managers, low volatility and high ease of investing. Both instruments can be bought and held in a demat account.

However, ETFs have the advantage of simplicity coupled with tax efficiency and lower cost, whereas Index funds offer a disciplined investing mechanism through Systematic Investment Plans (SIPs) for long durations. 

ETFs can be bought and sold all through the market hours (9:15 a.m. to 3:30 p.m.), whereas mutual funds can be bought only before a cut off time as specified by the mutual fund distributor or by a specific AMC. Investors can get the advantage of spot prices for ETF, whereas for an index fund, the NAV (unit price) would be known only after the market closes, AMC calculates the value and shares it on its websites and/or on third party sources. 

The minimum investment in an ETF is the price on offer per unit, whereas in an index fund the minimum investment depends on the AMC. Some AMCs offer investments for as low as Rs.100 or Rs.500 for an SIP. But, for a lumpsum investment, the minimum amount would be higher. 

There are many ETFs to choose from, and investors can decide based on their needs. In addition to these index based ETFs, there are Debt instruments based ETFs and Gold ETFs that can be purchased depending on interest and suitability. In all, there are around 150ETFs on offer for investors.

ETF's vs Index fund: Where should Investor invest?🧐

Index funds on offer are as follows and comparatively lesser than the ETFs on offer.

ETF's vs Index fund: Where should Investor invest?🧐

Depending on the suitability, investors can prefer ETFs and/or Index funds. 

ETFs are more easy to invest with high liquidity with lesser charges compares to MF