INDEX FUNDS | ETFS | |
Objective | Index fund is like a mutual fund scheme which replicates the performance of the chosen index. | ETFs also mirror the performance of the chosen index but they are traded on stock exchanges |
Demat Account | Index fund investments do not require investors to have a Demat account. | ETF investments can be made only through a Demat account. |
Nature of Funds | Open-ended fund. Here, the investment is added to total assets under management. | Investment does not get added to Assets under management and a fresh subscription is issued each time. |
Liquidity | Index fund units can be sold at the day end NAV just like any other MF as these are open-ended. Thus, they offer higher liquidity. | ETFs can be traded on stock exchanges just like any other stock. However, the Bid-Ask Spread in ETFs is generally higher due to low trading volume, so one has to be careful while transacting as the actual sale price can be lower than what you asked for. |
Volatility | Intraday Volatility (intraday range) of market doesn't affect Index fund | One can encash upon the intraday volatility if you track the pulse of the market. |
Cost | These are less costly as compared to mutual funds. However, they have a higher expense ratio due to higher transaction fees or commission as compared to ETFs. | Lower expense ratio due to lower transaction fees as compared to Index funds. |
Mode of Investing | Index funds allow SIP (systematic investment plan) mode of investment in the funds. Investors can begin investing a small portion of money in periodic intervals. | ETFs do not allow SIP mode of investment. Investors may have to shell out a lump-sum amount while starting the investment. |
Menu