ETF or Exchange Traded Fund is a tool used for investment in share form. These funds are traded via the stock market. They share their characteristics with both mutual funds and Shares. The cost of the underlying assets determine the changes in the ETF share price. ETFs can be managed actively or passively as the organizational laws permit. ETF in India are of the following four types:
- Gold ETF
- Equity ETF
- Currency ETF
- Debt ETF
Which is a better mutual fund or ETF?
When it comes to choosing a better investment option between a Mutual fund and an ETF, The comparison should be made upon the following points.
- Which is more flexible
On the point of flexibility, ETFs are more flexible as they are freely available for trade in the market as per the investors’ convenience while Mutual Funds require placing prior requests before the fund house.
As ETFs perform on index basis, they don’t require much monitoring and control therefore, they are comparatively less expensive while Mutual Funds are managed by a Fund Manager on the investors’ behalf and thus are expensive.
What is the difference between an ETF and mutual fund?
The key difference between Mutual Funds and ETFs is that Mutual Funds require more active management to outperform the market and help the investors earn profit on their investments. Whereas ETFs have a more passive management as their movement is in alignment with the concerned Market Index.
ETF vs Index fund
The prime difference between ETFs and Index Fund is that trade in Index funds happens more like trade in a mutual fund which involves NAV (Net Asset Value) of the underlying securities as part of its price, while ETF trade is aligned to stocks and their movement in the stock market.
Which is the best ETF to choose?
However, the answer to this question lies in what the investor expects from his investment. This can be identified by accessing the ETF fund flows data which shows the ETF fund flows and liquid funds performance.