Index Funds v/s ETFs | Should You Invest in ETFs or Index Funds? | Passive Investing | ETMONEY

More than ever before, Indian investors are taking a keen interest in passive investing. Index Mutual Funds and Exchange-Traded Fund (ETF) - are two ways by which passive investing is done in the equity markets.

In this video, we pan our focus on understanding the differences between these two financial products and will also look at the scenarios where one is better than the other

Topics Covered:
00:00 Introduction
01:43 FUND MANAGEMENT STYLE
02:53 TRADING STYLE
03:48 MINIMUM INVESTMENT
04:51 EXPENSE RATIO
06:24 LIQUIDITY
07:34 SIP
09:07 WHICH ONE IS RIGHT FOR YOU?

1. FUND MANAGEMENT STYLE
Index funds are passively managed instruments but that’s necessarily not the case with ETFs .. because ETFs can be passively managed or can also be actively manager. Infact, as it stands, about 20% of the ETFs in the United States are actively managed ETFs .. which means there is an investment team that is researching companies and taking decisions on the ETF's portfolio allocation

2. TRADING STYLE
From an operational perspective, an index fund is a mutual fund while an ETF comes closer to how a stock works.ETFs, much like stocks, can be traded throughout the day at a price that goes up and down. Index funds can be bought and sold only at the price which is published at the end of each trading day

3. MINIMUM INVESTMENT
ETFs are bought in units while index funds are generally bought in terms of an amount.
In the case of ETFs, most trading platforms allow their investors to buy even a single unit.
Index fund - all mutual fund companies require a minimum order value of at least 100 rupees with some AMCs starting higher at 500 rupees for SIP and lumpsum transactions

4. EXPENSE RATIO
ETFs and index funds both come with relatively low expense ratios. But relatively, ETFs tend to be cheaper than index funds in most scenarios.
There are two additional costs that ETF investors need to be aware of:
1. Commissions charged by your broker i.e. the trading platform - which is typically a percentage of the amount traded or a flat fee per transaction.This commission or fees is generally a mix of many expenses like brokerage, GST, STT, stamp duty, exchange fees, SEBI turnover tax,etc.
2. Bid-ask spread - which is a small transaction cost that is embedded in the price of the ETF

5. LIQUIDITY
With index funds, there is no real concern on the liquidity front. However, when it comes to ETFs the lack of liquidity can certainly be a concern. And that’s because unlike an index fund here, the investor is buying the ETF like any other equity share.

6. SYSTEMATIC INVESTMENT PLANS
Systematic investment plans or SIPs are a popular method of investing for retail investors .. with monthly inflows consistently crossing the 8,000 crore mark for many months now. While index funds offer the SIP facility ETFs generally do not offer a SIP option. But more recently, we have seen a couple of platforms offering an ETF-SIP facility .. but these are far and few .. and hopefully more platforms will introduce this vital facility in the months to come

WHICH ONE IS RIGHT FOR YOU?
ETFs and index funds are quite similar and choosing one over the other will depend on what you seek as an investor and your investing behavior

For instance, if you are someone who is a long-term investor with long-term goals .. you would prefer a disciplined approach to invest. which can be best provided by an index fund via the SIP facility

However, if you are keen on trading when the markets are volatile, then ETFs might serve as the more worthy tool. In fact, many tactical investors who have an above-average understanding of the stock markets tend to trade in ETFs for very short durations especially if there has been some news-driven market dip

Choosing between an index fund and an ETF is a matter of selecting the appropriate tool for the job.

Index funds should be your core holding meaning, index funds are where your long-term wealth-building vision should be trained at.
ETFs can be more tactically deployed when there are news-related spikes and dips. Another use of ETFs can be in picking certain sectoral baskets which might be undervalued presently and are expected to go up in the short term.

#ETMONEY​ #ETF #IndexFunds #MutualFunds

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[tahirisaid]

The quickest way to make your first millions is to invest directly with an expert that is trustworthy and has made a name and individual billionaires. I realized that the secret to making a million is making better investment.

[abmulhim]

There is one fact that is always overlooked which is : since ETFs are traded, it may be overvalued by trader because it depends on supply and demand rule. whereas index funds units are divided by assets and it gives you the fair quote based on asset recent valuation.

[lavishsachdeva]

You never fail to give us a holistic view 😁 I always wait for your videos and rarely miss any because of your content. Your content is not driven by sponsorships but just pure learning. Kudos 🥂

[poojakumarijha]

Another very informative video that explains the difference. Just to share: one can do SIPs in index ETFs via smallcase. For eg, I have "All Weather Investing" smallcase where I do monthly SIPs. This smallcase comprises of 4 ETFs: Nippon India ETF Nifty BeES (this is NIfty 50), Nippon India ETF Junior BeES (this is Nifty next 50), Nippon India ETF Liquid BeES, Nippon India ETF Gold BeES. While I started investing in ETFs since last 3 months, I understood the difference better only today, from this video :). I love the nice animations in your presentation and the plain green background (that is not distracting and aids in capturing the focus of the listeners).

[seajaey]

Respect for your presentation is increasing day by day in my eyes! Superb content! Top notch! 👍🏻

[variavnath]

Index funds for long terms and ETFs for short term trading
100% correct

[rvarma]

So very well explained! A comprehensive guide in a point by point difference between ETF and Index funds!!👍🙏👏

[SorcerorStrange]

Superb presentation. Showed this to my cousin who is doing B Tech . He and myself found your explanation very simple

[rishavjalan]

Surprised by how ET Money brings out relevant videos one after the other. I wanted to get clarity on this topic. This content very well served the purpose.

[Vivek]

Must say this. After watching couple of great videos from other experts on this topic, this video was satisfyingly clear on the minor details.

[snehalpatil]

Thankyou...the level of depth and diversity in the topic is way ahead than other tutorials, as a beginner I would watch other shallow vdos, and after getting the basic idea, I learn with ur detailed vdos....wat I learn from ur vdos is way more than wat I learn from investing time in 4-5 other a suggestion - voice and energy level cud b a little high if possible....all the best, expect a very high subscription sooner :)

[niranmojo]

One can and Buy and Hold an ETF just like you would with an Index fund. Make an effort to have an investor's mindset instead of a Trader's. In the end an ETF index investor over period of 10 years will come out ahead based on the fee saved.

[dtube]

Sir I am following you from few months and gain most important financial knowledge, thank you so much

[dilipviswanath]

Hi Sir, I have 2 questions.
1. Are index funds regular or growth funds, as I think this creates a lot of diff on the long run I presume.
2. RankMF and other platforms incl ICICI claim to offer these smart SIPs free of charge? Is there a catch we should be aware of and how do those companies make money?

It's one of the tittle I'm waiting to see for quite sometime, with six different points between thm, thanks for you and the team.. index funds are like mutual funds, where as ETF r little odd to understand.. but you explain thm very simply and clearly.. 👌

[sheirshsaxena]

Hi sir, leaving aside all the other factors, which among the two levies more fees, index fund or etf

[RajdeepBiswasInd]

Index fund NAV is decided based on actual rate of stocks at the end of the day.
ETF is based on demand and not actual portfolio value? Is this correct understanding?

[kkagrawal]

Shankar Nath,
I appreciate and admire your communication and delivery God Bless you. I am an 81+ Civil Engineer.
Krishna Kumar Agrawal

[shubhampansari]

I was looking for some clarity on this subject and came across this video. Thank you so much!

[searchoftruth]

We have complete control if our etf in our demat
While index mutual fund under full control of fund house. Fund house may corrupt and misuse our fund