Dhirendra Kumar highlights the pros and cons of investing in an exchange-traded fund and a fund of fund
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Motilal Oswal has two funds tracking NASDAQ 100, namely Motilal Oswal NASDAQ 100 Exchange-Traded Fund and Motilal Oswal Nasdaq 100 FOF. What is the difference between these two funds and which of them should I invest in?
The underlying investment is same for both the funds. To buy an ETF, one has to visit a stockbroker and open a Demat account, place the order and the broker buys those ETF units for the investor. ETFs trade on the stock exchange and thus, one can buy their units anytime. However, the price can vary and it could be more/less than the NAV.
In the case of Motilal Oswal Nasdaq 100 FOF, it invests in Motilal Oswal NASDAQ 100 Exchange Traded Fund only. However, you are able to buy it like an open-ended fund. Thus, it can be bought at that day's NAV (net asset value).
Motilal Oswal NASDAQ 100 Exchange Traded Fund is a good fund. But when it was launched, it became difficult for investors to buy it, as it was available at premium and one wasn't able to buy it at a price close to NAV.
The advantage of an ETF is that its expenses are low; however, it is difficult to buy it and involve a broker. On the other hand, since FoF is an open-ended fund, one can buy it easily and even do an SIP in it. The disadvantage is its high expense ratio, as it includes the fees charged by the underlying fund as well.