Published: 24th Dec 2024
By: Value Research
Though both ETFs (exchange-traded funds) and index funds follow a similar investing strategy, there exist certain differences between them. Swipe to the next few slides to find out.
ETFs trade on stock exchanges and must be purchased manually each time. You cannot set up SIPs for ETFs. Index funds, on the other hand, allow for systematic monthly investments.
Like stocks, prices of ETFs are updated in real time throughout the trading day and may be at a premium or discount to their NAV, depending on demand-supply differences. With index funds, you can buy or redeem the units at a fixed NAV, which is calculated once a day.
The availability of ETFs depends on their demand. With index funds, however, there is no such issue, as purchases and redemptions are handled by fund houses themselves.
ETFs typically have lower expense ratios than index funds, making them more cost-friendly.
To invest in ETFs, you must have a demat and a trading account. There is no such requirement for index funds.
Yes. If you don’t have a demat or trading account but are keen on investing in ETFs, consider FoFs (fund of funds). These mutual funds invest in ETFs, giving you indirect exposure to them.
If you are seeking a low-cost investment option, ETFs may be better. However, for those looking for a convenient and more liquid option that helps inculcate disciplined investing, index funds are ideal.
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