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Is a mutual fund better than an ETF? And what is the tax treatment of an ETF?

Dhirendra Kumar says why the case for ETFs hasn't been very strong in India

Answer transcript: The tax treatment of an ETF is the same as that of a mutual fund if it is an equity ETF. This is not so if you are talking about a gold ETF or a fixed income ETF. All ETFs are mounted on an Index which means you have to make a choice - whether you want your money to be managed actively or whether you want to ride an index to generate as much return as an index. In India, the case for actively managed funds is very compelling. Over 5 or 10 years actively managed funds have delivered superior returns. There are a variety of reasons for this and we will go into them in a special session.

The case for ETFs has not been very strong because the fund managers have been able to beat the benchmarks by a very wide margin over any long term period. Buying an ETF as compared to an open ended fund is a little complicated. You buy a mutual fund directly from the fund company or you buy it through Mutual Fund Utilities or through a Mutual Fund Agent or through a bank. Compared to that you buy ETFs the way you buy shares. You place your order but you don't get it at NAV. You get it at market price which may vary from the NAV on a day-to-day basis. Sometimes it can be at a premium and sometimes it can be at a discount to NAV.

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