Is it true that index Exchange Traded Funds (ETFs) are a better option than regular mutual funds for long term investments? If yes, explain why is it so?
- Saurabh Pradhan
The superiority of Exchange Traded Funds (ETFs) and index funds is based on the theory that no fund manager can beat the market regularly for a very long time. The proponents of this theory believes that there is no point in paying a fund management fee and it is better to be a passive investor and bet on the index. An exchange traded fund (ETF) is similar to an index fund. Like an index fund, an ETF also comprises a basket of securities, which are part of a pre-decided index, in the same proportion as that of the index. ETFs are traded on stock exchanges and investors can buy or sell them through a broker. They are very popular in developed countries. However, the theory doesn't apply to a developing market like India. At least not yet. Actively-managed funds have been regularly beating benchmark in India. So it is better to stick to a top-rated actively-managed scheme.
For more on ETFs, read: All About ETFs.
This article was originally published on February 03, 2016.
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