Index Mutual Funds and ETFs are passive investment vehicles that invest in an underlying benchmark index. Index Funds operate like Mutual Funds while ETFs trade like shares. Hence it depends on your investment preference to choose one over the other for the same passive investment strategy.
ETFs are suited for intraday trades, limit or stop orders and short-selling but if you are not one of those who likes to time the market, index funds are for you. While frequent transactions can raise commission costs and lower your return from ETFs, they also tend to have lower expense ratio compared to Index Funds. But Index Funds give you various options to suit your financial needs like growth option for long-term goals versus dividend option for regular income. You can also invest regularly in smaller amounts through SIP in an Index Fund. You also don’t need a Demat account to invest in Index Funds unlike ETFs.
While both offer exposure to a broader market through passive investment, the operational differences between them can become the deciding factor for convenience sake. Just like when you want to travel from Mumbai to Goa, you could choose a train or an overnight bus. While both serve your end objective, the choice of one mode over the other for convenience is purely an individual choice.
.jpg?itok=oKzS-z6V "What are the benefits of ETFs?")
