ETF vs Index Funds

MUMBAI: A lot of the youngsters are now willing to explore the world of equity market but most of them lack the knowledge and time for that . So as a source of passive investment growth they have turned to the next best thing which is Mutual Funds . A lot of people from the older generation who are not so happy with the FD rates are also turning towards Mutual Funds as an alternative which gives high returns if invested in for a long time.

Once a person decides to invest in mutual funds via SIPs or maybe even a lump sum amount the next herculean task is to select a scheme which will give them good and stable returns year on year. Now a days most people want to get returns similar to the index i.e NIFTY OR SENSEX , hence they decide to invest in schemes related to index but often get confused between ETF and Index fund.

What is an ETF and how does it work?

An ETF may be a basket of securities, shares of which are sold on an exchange. They combine features and potential benefits of stocks, mutual funds, or bonds. Like individual stocks, ETF shares are traded throughout the day at prices that change supported supply and demand.

What is an index fund and how does it work?

An mutual fund may be a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index. Index funds have lower expenses and costs than actively managed funds. Index funds follow a passive investment strategy.

Which is better ETF or Index fund?

Though both of them have their own pros and cons my personal favorite is ETF since it gives you a variety of asset classes in a single basket and also the lock in period doesn’t bother an individual hence ensuring liquidity in times of need.

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