Could you explain the major difference between ETF and index funds. Which is better? – Thomas, Kochi
Both exchange-traded fund (ETFs) and index funds serve similar purposes and are passively managed, which means that the fund manager invests in the same securities as in the underlying index in the same proportion, at a given time period.
The main differences between an ETF and index fund are:
• An ETF can be bought and sold on an exchange, much like an individual stock.
• ETFs give intraday trading flexibility (subject to liquidity and price conditions).
• ETFs carry lower expense ratios but have transaction costs associated with.
• Demat account is required to invest in ETFs but not required to invest in index funds.
• Investors can invest in index funds through SIPs, but not in ETFs.
