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Asked a question 2 years ago

Which is better- ETF or Index Funds?

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Hey @Pradeep Sharma19,

The question is quite subjective. Both of the funds are passive instruments, because, unlike a typical, actively managed fund, these two instruments do not change their portfolio a lot.

Index funds are basically Open-ended mutual funds where your portfolio will be created and managed by the Fund manager, who will replicate the underlying indices without any stock selection. 
Exchange-Traded Funds or ETFs, on the other hand, are traded on exchanges and already have funds invested in the same proportion as underlying indices. There is more liquidity in ETFs, provided there is a counterparty available at the moment. Because of their liquidity, ETFs are preferred by the traders, since they can pledge them and avail margin benefit.
Index funds on the other hand offer handsome returns, hence it is preferred by long-term investors. 
There are other factors that can be considered as well such as exit load, expense ratio, tax benefits, etc. 

Hope this helps!


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