Index Funds v/s ETFs | Should You Invest in ETFs or Index Funds? | Passive Investing | ETMONEY

More than ever before, Indian investors are taking a keen interest in passive investing. Index Mutual Funds and Exchange-Traded Fund (ETF) - are two ways by which passive investing is done in the equity markets.
In this video, we pan our focus on understanding the differences between these two financial products and will also look at the scenarios where one is better than the other
Topics Covered:
00:00 Introduction
01:43 FUND MANAGEMENT STYLE
02:53 TRADING STYLE
03:48 MINIMUM INVESTMENT
04:51 EXPENSE RATIO
06:24 LIQUIDITY
07:34 SIP
09:07 WHICH ONE IS RIGHT FOR YOU?
1. FUND MANAGEMENT STYLE
Index funds are passively managed instruments but that’s necessarily not the case with ETFs .. because ETFs can be passively managed or can also be actively manager. Infact, as it stands, about 20% of the ETFs in the United States are actively managed ETFs .. which means there is an investment team that is researching companies and taking decisions on the ETF's portfolio allocation
2. TRADING STYLE
From an operational perspective, an index fund is a mutual fund while an ETF comes closer to how a stock works.ETFs, much like stocks, can be traded throughout the day at a price that goes up and down. Index funds can be bought and sold only at the price which is published at the end of each trading day
3. MINIMUM INVESTMENT
ETFs are bought in units while index funds are generally bought in terms of an amount.
In the case of ETFs, most trading platforms allow their investors to buy even a single unit.
Index fund - all mutual fund companies require a minimum order value of at least 100 rupees with some AMCs starting higher at 500 rupees for SIP and lumpsum transactions
4. EXPENSE RATIO
ETFs and index funds both come with relatively low expense ratios. But relatively, ETFs tend to be cheaper than index funds in most scenarios.
There are two additional costs that ETF investors need to be aware of:
1. Commissions charged by your broker i.e. the trading platform - which is typically a percentage of the amount traded or a flat fee per transaction.This commission or fees is generally a mix of many expenses like brokerage, GST, STT, stamp duty, exchange fees, SEBI turnover tax,etc.
2. Bid-ask spread - which is a small transaction cost that is embedded in the price of the ETF
5. LIQUIDITY
With index funds, there is no real concern on the liquidity front. However, when it comes to ETFs the lack of liquidity can certainly be a concern. And that’s because unlike an index fund here, the investor is buying the ETF like any other equity share.
6. SYSTEMATIC INVESTMENT PLANS
Systematic investment plans or SIPs are a popular method of investing for retail investors .. with monthly inflows consistently crossing the 8,000 crore mark for many months now. While index funds offer the SIP facility ETFs generally do not offer a SIP option. But more recently, we have seen a couple of platforms offering an ETF-SIP facility .. but these are far and few .. and hopefully more platforms will introduce this vital facility in the months to come
WHICH ONE IS RIGHT FOR YOU?
ETFs and index funds are quite similar and choosing one over the other will depend on what you seek as an investor and your investing behavior
For instance, if you are someone who is a long-term investor with long-term goals .. you would prefer a disciplined approach to invest. which can be best provided by an index fund via the SIP facility
However, if you are keen on trading when the markets are volatile, then ETFs might serve as the more worthy tool. In fact, many tactical investors who have an above-average understanding of the stock markets tend to trade in ETFs for very short durations especially if there has been some news-driven market dip
Choosing between an index fund and an ETF is a matter of selecting the appropriate tool for the job.
Index funds should be your core holding meaning, index funds are where your long-term wealth-building vision should be trained at.
ETFs can be more tactically deployed when there are news-related spikes and dips. Another use of ETFs can be in picking certain sectoral baskets which might be undervalued presently and are expected to go up in the short term.
#ETMONEY​ #ETF #IndexFunds #MutualFunds
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[@abmulhim]

There is one fact that is always overlooked which is : since ETFs are traded, it may be overvalued by trader because it depends on supply and demand rule. whereas index funds units are divided by assets and it gives you the fair quote based on asset recent valuation.

[@umamifit5679]

Don't you think it will be offset by lower expense ratio of ETF in the long term?

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So very well explained! A comprehensive guide in a point by point difference between ETF and Index funds!!👍🙏👏

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[@poojakumarijha]

Another very informative video that explains the difference. Just to share: one can do SIPs in index ETFs via smallcase. For eg, I have "All Weather Investing" smallcase where I do monthly SIPs. This smallcase comprises of 4 ETFs: Nippon India ETF Nifty BeES (this is NIfty 50), Nippon India ETF Junior BeES (this is Nifty next 50), Nippon India ETF Liquid BeES, Nippon India ETF Gold BeES. While I started investing in ETFs since last 3 months, I understood the difference better only today, from this video :). I love the nice animations in your presentation and the plain green background (that is not distracting and aids in capturing the focus of the listeners).

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I was looking for some clarity on this subject and came across this video. Thank you so much!

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[@9176903103]

It's one of the tittle I'm waiting to see for quite sometime, with six different points between thm, thanks for you and the team.. index funds are like mutual funds , where as ETF r little odd to understand.. but you explain thm very simply and clearly.. 👌

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[@variavnath624]

Index funds for long terms and ETFs for short term trading 100% correct

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[@prakashraghunathan2685]

Avery comprehensive Analysis sir After knowing Etf I will try to invest.Thank you sir!

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Very nice detailed explanation. Would like to understand preferred etf for long term.

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[@trpaarvai6545]

A very good comparison and I loved the conclusion part very much.

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Thank you so much for this vital information. Much success to you and yours!

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VERY USEFUL INFORMATION

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[@VickyGYT]

Can you please explain how effect of compounding is achieved in both the cases?

[@BobyEJ]

In market corrption which is better to invest as lumpsum, niftybees or Index fund?

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Sir, You are genuine.

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Yes yes, we dont use any AI

[@bennetrajendran1145]

Can you explain with an example cost of investing on, nifty direct index fund vs nifty ETF. That is direct index fund expense ratio vs ETF with demat fees.

[@dilipviswanath9106]

Hi Sir, I have 2 questions. 1. Are index funds regular or growth funds, as I think this creates a lot of diff on the long run I presume. 2. RankMF and other platforms incl ICICI claim to offer these smart SIPs free of charge? Is there a catch we should be aware of and how do those companies make money?

[@SajayanKS]

Crystel Clear explanation.

[@madhurinarkar4801]

Could you address these tracking errors component also? Thx

[@5966ramesh]

Excellent video. Thanks for making it clear. I invest both in Index funds and sectoral ETFs.

[@ETMONEY]

Most welcome

[@searchoftruth641]

We have complete control if our etf in our demat While index mutual fund under full control of fund house. Fund house may corrupt and misuse our fund

[@puchaisen162]

If we invest on a fixed amount every month on ETF like SIP, then is it possible? is Niftybees an ETF ? cant we sell it anytime during the market hours , isn't it liquid ? Kindly help us to understand this one.

[@Ssaurabhvanne]

Are there are any index funds which has daily SIP

[@sheirshsaxena4228]

Hi sir, leaving aside all the other factors, which among the two levies more fees ,index fund or etf

[@vinayak_finance.3052]

Which is the best niftybees or nifty index fund with expenses ratio of 0.20 and same etf with 0.05 and other charges as per how much return difference is there so.

[@MrDhunna8]

Always go with broad-based index fund with lowest possible expense ratio as per Jack Bogle.

[@gaurav20021966]

Index funds for long term with liquidity 👍

[@balgates30]

Is it okay to consider BSLNIFTY over NIFTYBEES for long term?

[@ajitshetty957]

What happens to the dividends of individual shares in ETFs? Do etfs pay out or reinvest the dividend like mutual fund?

[@ETMONEY]

Most ETFs reinvest the dividend proceeds that they get from the underlying securities. In India per se, there are very few ETFs that have a history of paying dividends

[@kkarthii88]

@@ETMONEY 1. if ETF is reinvesting the dividend, how will investors hets benefit of It, as the NAV/price of ETF is market determined based on demand & supply. 2. How to check whether the ETF is reinvesting or paying out dividend 3. Can u plz suggest good NIFTY 50 ETF with low tracing error & dividend payout Thanks in advance

[@vishnusood987]

Can we invest in etf through et money? If yes how

[@ashishshetty215]

SIP in nifty ETFs or SIP in nifty index fund? Which is better for long term?

[@salmonswansi7090]

Etf are better for buying on dip this is one of the best reason why I prefer etfs over index fund

[@abinashnaik8149]

🤔 To invest in index mutual fund , we don't need trading & demate A/c ?

[@ETMONEY]

Nope. Use the ETMONEY app to invest in index funds. No demat/trading account needed

[@variavnath624]

ETFs are most costly with brokerage and other taxes and some complicated than indexes! Returns are same and liquidity in etfs is a big question Thanks for the videos

[@ETMONEY]

Most welcome

[@pratikshah5347]

MFs keeps cash reserve so all amount of MF not invested. ETF all amount invested. Is it correct?

[@ETMONEY]

Unlike an MF, an ETF does not have to maintain a cash reserve for redemptions

[@aashusingh1059]

Hello Sir..is there any Video made by ETMoney team on Index fund only..if available please share the link..

[@ETMONEY]

There are many. Pls try: kzbin.info?search_query=etmoney+index+funds

[@niranmojo]

One can and Buy and Hold an ETF just like you would with an Index fund. Make an effort to have an investor's mindset instead of a Trader's. In the end an ETF index investor over period of 10 years will come out ahead based on the fee saved.

[@suneetsalvi1200]

How is the Capital gains calculated on both

[@ETMONEY]

Pls refer to this video to understand capital gain process kzbin.info/www/bejne/qYrXn4KMnMl7las

[@Pavitracreations]

Nice Video with explanation..please make video too 5ETF AND INDEX FUNDS

[@arshad3551]

INDEX FUND Or ETF which one is COST EFECTIVE ?

[@DileepM]

Will ETF compound?

[@ketpathak]

Same question. Let me know if you have found out the answer yet. Thanks.

[@letsconnect8849]

sir,I am just 18 can u tell which scheme would be best for me

[@ETMONEY]

Hi. On the ETMONEY app, please look for the our investment ideas collection. Since you are a beginner, pls look out for "Mutual Funds for Beginners" within investment ideas

[@letsconnect8849]

@@ETMONEY ok.

[@bharathmu7231]

Any difference in term on COMPOUNDING between index fund and ETF ? plz plz reply to my message

[@ETMONEY]

Not verified but should be. Expense ratio of ETF is less than index fund. But one needs to consider tracking error as well

[@sanketjain9320]

Hi. Can you also comment on mutual funds that invest in ETFs? Since ETFs can be very volatile and suffer from huge tracking error, should one avoid Mutual funds that invest in ETFs?

[@ETMONEY]

Hi. We have an entire video on this. Link: kzbin.info/www/bejne/g4OyZop6rNesj6s

[@sanketjain9320]

@@ETMONEY Thanks for the reply, but am not asking etfs vs mutual funds. I wanted to know if it makes any difference to an investor to invest in mutual funds that in turn invest in etfs vs a regular mutual fund (other than expense ratio) . Like kotak nasdaq 100 fof which invests in an etf based in US. Asking specifically in terms of returns and tracking error.

[@devjyotichatterjee2755]

Shankar I have tough one for You....Please have a video whether to take out money from EPF as Advance and invest it in NPS Equity scheme. Conventional wisdom suggests this to be a gamechanger wrt to corpus at end of Life.

[@pratikjondhale2157]

If you want to start an SIP in ETFs, you can make a smallcase of min. 2 ETFs, decide your allocation and start an SIP via your broker app. P.S. I understand why he didn't mention this method in the video :P

[@AshwiniShettyOfficial]

Why didn't he?

[@jaikrishnank428]

He did mention that it can be done, but only with some platforms offering it at present. Also, you make it look like it was a sinister plan to conceal that - it will be enlightening to know why you think that way.

[@ETMONEY]

Thanks Jaikrishnan K, for watching and assessing the entire video.

[@premisrani111]

Thank you sir for this informative video... Par sir aap hindi me video banaoge to jyada log isko samj sakenge

[@manishkaul6291]

Can you also explain everything about what ETF is?

[@tariqueanwer9329]

Awesome, sir how to connect to you for a good mutual fund portfolio

[@ankurmishra4307]

Sir please make the same videos in hindi as well, because people like me know nothing about jargons used in financial world and it becomes very difficult to understand in this situation.

[@ETMONEY]

हमने हाल ही में हिंदी KZbin channel शुरू किया है। कृपया लिंक पर क्लिक करें और हमारे हिंदी चैनल को subscribe करना न भूलें kzbin.info/door/zWtyDo9KmEC1JoAqa1LIEwvideos

[@sairishi]

One benefit that went without mention is that one can buy call/put options of an underlying ETF. This is useful to some tactical investors who want to hedge against a dip.

[@aashishsoneji7507]

What are the tax rates on etf?

[@sandeepdhadwal5264]

SIP for ETF are available on hdfc security so not sure why you mentioned that it is not available. I am doing it for past 2 years. Also, I didn't feel liquidity problem with it past 2 years

[@spartan1453]

Sir what about motilal oswal Nasdaq 100 etf?

[@prashantverma1859]

I can invest in UTI index fund for 40 year, will the fund be open for 40 years

[@GoutamNarayan]

If I am unable to sell ETF, then what happens with my money?

[@willsvankal]

I don't know why the voice seems coming out from a deep hole when compared to others. Not a complain....

[@rushikeshparade1974]

What about liquidity?? I am not able to sell my sbi nifty next fifty etf units for a day with limit order price is same with trading price.. So check liquidity before invest in etfs...

[@lavishsachdeva8374]

He mentioned that ETFs can pose a challenge in terms of liquidity

[@sachin_2601]

True

[@DensonGeorge18]

Except for nifty 50 ETFs all other ETFs I believe will pose this challenge.

[@rushikeshparade1974]

@@lavishsachdeva8374 yes he mentioned but this is my frustration sir, think market is at all time high, app showing 30% profit for your investment in etf, you place a sell order and no one is ready to buy that shares then what is the point of that paper profit ??

[@rammv4082]

The biggest concern for Index ETF is trading volumes. When markets are all time high, we may not find a buyer and probably stuck. Also, with minimum people investing in ETF's in India... This will continue to be a problem for near future at least.

[@sachin_2601]

Very true

[@KalyanKumar-dt2id]

Please introduce ETFs in ET money It would be helpful for beginners and small investors

[@ETMONEY]

Hi. We have ETFs as part of the Genius 'stock+ETF' portfolio. We're also working on some new ETF related offerings which are slated for release over the next few weeks

[@shivambansal9976]

We can do sip in etf just like stock sip…Zerodha provides that facility to add basket and creat SIP in Kite

[@anirbanadgiri99]

As usual very meticulous informative classes with no hurry to sell or make you subscribed his channel. But expect more upgraded quality contents with new idea , theses are not new to investors now a days.

[@tanuj05]

ETF's are not illiquid. There are middlemen(from AMC's) who will step in whenever there is a demand supply inequality and buy /sell units

[@ankushmadankar1756]

Well if management fee higher in index fund then I should go with ETF since there are tons of application from where you can track it. Even simple investor can buy ETF looking at market ideally when few percent lower in month. Anyone paying higher fee should look for better MF options than index fund

[@WorldgeopoliticsbyPrashant]

Nice session sir. But I didn't understand the Point. How come Index funds are passively managed? It would be great if you could explain or elaborate

[@djjohn2126]

Small case is better for etf

[@dr.daulatsharma7570]

Suggest best Index fund and ETF

[@hearthacker9091]

We can do sip in etf by using bucket option in zerodha

[@shubhamjain54519]

Please dub in hindi