Investors are trying to take less risk after a steep fall in the Indian stock market. As a result, the demand for index funds and exchange traded funds (ETF) has increased. The reason for increasing demand of these two is that these are more secure than normal mutual fund schemes. Index funds have become increasingly popular amidst major market recession. In such a situation, if you are thinking of investing in index funds or ETFs to protect yourself from market fluctuations, then it is important to know some things. Without this you will not be able to choose the right product. Let us know what is the basic difference between these two and which is suitable for whom.
Trade system
The stock of ETF is traded like stock in the market, and can be purchased or sold at the market price during the day. Index funds do trading only once a day when the stock market is closed, and therefore trading on the basis of net asset value (NAV) at the time of the stock market closure.
Flexibility in investment
Investors can avail intraday price changes with the help of ETF, so they are suitable for investors who want to earn money through trading. Index funds are not easily found in this regard. They can only be sold or purchased at the end of the business day, so the benefit of real -time business is not available.
Demat accounts
To invest in ETFs you need to have a demat account, as these funds are listed in stock exchanges and have trading. Demat account is not required for index funds, making it a convenient option for investors who do not want to adopt indirect mutual fund investment scheme. Therefore, if you do not want to participate directly in the market and do not want to open a demat account, you can consider the index fund.
Investment through SIP
Investors can invest in index funds under the Systematic Investment Plan (SIP), under which they can invest small amount at a time for a certain period. This is not possible for ETFs in most situations, and it may discourage some investors from using systematic investment plans.
Ambush ratio
Typically, ETFs are cheaper than index funds because they follow passive management strategy and hence their expenditure ratio is quite low. This is the main reason that ETFs are most preferred among long -term investors who do not want to spend on fees, but want to invest in the market index.
