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Index Funds vs Index ETFs

Underlying portfolio of an index fund and ETF is same but their structure is completely different...

I want to invest some amount monthly in the index for long term. Should I select an Index ETF or low cost index funds.
- Y K Shetty

Both ETFs (Exchange Traded Funds) and Index funds track the performance of an Index like Sensex or Nifty. Although the underlying portfolio of an index fund and ETF is same but their structure is completely different.

Index funds are open-ended mutual funds which invest money in the same weightage and companies that comprise the index. While ETFs are like closed-ended funds. Their units are created and listed on stock exchanges. You can buy ETF units only from an exchange. ETFs are managed more efficiently in India and have a smaller tracking error. ETFs also have a lower expense than index funds. Majority of the index funds have an expense of 1.5 per cent while that of ETFs range between 0.25 and 1 per cent. ETFs are a better way of replicating an index.



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