Index Funds vs ETFs – Which is Better for Retail Investors?Hello Traders!
When it comes to passive investing, two options always come up, Index Funds and ETFs (Exchange Traded Funds) .
Both track an index like Nifty or Sensex, but the way they work is different.
Let’s break them down so you know which one suits you better.
1. What are Index Funds?
Index funds are mutual funds that replicate a market index like Nifty 50.
You can invest directly through SIP or lump sum, just like other mutual funds.
They don’t trade on the stock exchange; instead, you buy/sell via the fund house.
NAV is calculated once a day, you get units at that day’s NAV.
2. What are ETFs?
ETFs also track an index like Nifty or BankNifty, but they trade like stocks on the exchange.
You need a demat account to buy/sell ETFs.
You can trade them intraday, just like shares.
Price changes throughout the day as they trade live in the market.
3. Key Differences You Must Know
Liquidity: ETFs depend on exchange volumes. Index funds are more stable since you transact with the AMC.
Ease of Use: Index funds are simpler for beginners (no demat needed). ETFs suit traders who want flexibility.
Costs: ETFs usually have lower expense ratios, but you pay brokerage. Index funds may have slightly higher costs but no brokerage.
Investment Style: Index funds are great for long-term SIPs. ETFs are better for those who want intraday liquidity or tactical entries.
Rahul’s Tip:
If you’re just starting and prefer SIPs without worrying about trading, go for index funds.
If you’re comfortable with demat and want real-time flexibility, ETFs give you more control.
Conclusion:
Index funds and ETFs both are powerful tools for retail investors.
The “better” choice depends on your style, simple and steady with index funds, or flexible and active with ETFs.
This educational idea By @TraderRahulPal (TradingView Moderator) | More analysis & educational content on my profile
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Indexfunds
EFT BASED INVESTINGHello Readers!
As of EOD 01-10-2021, the indices ended in a good amount of Red and there is some sort of pessimism set in from the posts, messages that I have been reading and watching. People have started calling for downward levels citing DXY and global issues and whatnot.
As a trader/investor, I feel that the greater the pessimism and such pessimism is confirmed by a downward price move, the better it is. The reason is very simple -
We are not in a sorry state as we were in March-April 2020. So any dip may only be seen as a buying opportunity as indices eventually would go up. The problem occurs when one is trading in derivates where MTM losses have to be settled with the exchange via the broker and that is where the pain comes.
However, if one buys quality scrips during such dips, those would go up if not in line with the markets at least in line with the sectoral trend. But again, which stock to pick may be an issue as either these are already hanging in the air or are nowhere near fundamental/technical levels to initiate a buy.
So I thought of doing a check on the NIFTY as well as BANK NIFTY ETFs - where I already have some holdings invested at lower levels. I was quite pleased with what I ended up working out and therefore, thought of sharing the same with you folks. In fact, just before recording this video, I was talking to a friend and I explained to him what I have explained in the video and he was quite interested in placing the order next week.
Now, I am not a SEBI regd analyst / advisor, but my view is medium to long term as eventually, over a period of time indices tend to achieve higher highs and that is why I thought of this approach to investing.
Please let me know what do you think about it. Based on where NIFTY trades on 4-10-21, I may invest part of my funds into both the approaches that I have shared in the video.
Happy Learniing, Investing & Money Making!
Umesh
2-10-21