How are ETFs different from mutual funds in India?

Exchange Traded Funds (ETFs) and Mutual Funds both represent investment options. The biggest similarity between the two is that both are professionally managed basket of individual stocks or bonds. However, there are certain differences between the two:

· Minimum Investment:

An ETF can be bought at the amount that it trades for on the exchange. This price is generally around 10% of the index value. On the other hand, mutual funds can only be bought sold and sold at ttheir Net Asset Value or the NAV, which is determined at the close of each trading day.

· Control over price:

ETFs provide real time pricing, which means you can take real time calls as to at what price you want to buy or sell your fund. A mutual fund can only be bought or sold at NAV, which means that all investors who bought or sold shares on a particular day have purchased or sold them at the same price. You can read more about NAV here.

· Automatic reinvestment/withdrawal:

ETFs dfo not allow for systematic reinvestment or withdrawal. Mutual Funds allow for this through investments in Systematic Investment Plan (SIPs), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP). You can read more about them here.

· Arbitrage Opportunity:

Because ETFs can be sold short just like stocks, there is a chance that they may be traded at a price other than their true NAV, thus providing opportunity for arbitrage gains. Mutual funds are relatively less risky and do not allow for arbitrage.

· Fees:

As ETFs are passively managed, they charge lesser fees as compared to actively managed mutual funds as fund managers need to continuously monitor the market and identify potential growth as well as failures.

Hope this answers your question!

A mutual fund is an investment instrument, basically collection of stocks and/or bonds, managed by professionals of an asset management company. Investors will put their money in different types of mutual fund units depending on their risk appetite and duration of investment.

ETF or Exchange Traded Fund is a basket of stocks or securities of index which can be traded over exchange. These funds have composition same as the index such as Sensex, Nifty,etc. They are listed and traded on a stock exchange like common stocks. So, can be bought and sold at anytime of the day. Liquidity of ETF is very high and charge lower fees.

Difference

• ETFs trade throughout the trading day, like stocks, while mutual funds trade only at the end of the day at the net asset value (NAV) price.
• Most ETFs track to a particular index and therefore have lower operating expenses than actively invested mutual funds. Thus, ETFs may improve your rate of return on investments.

You can read more about the topic here.

Exchange-traded fund (ETF) is kind of an index fund that invest in an index, a commodity, currencies, bonds etc. Whereas, mutual fund is an investment instrument, basically collection of stocks and/or bonds, managed by professionals of an asset management company.

ETFs are different from mutual funds in these way:

• ETFs are listed and traded on a stock exchange like common stocks whereas mutual funds themselves are not listed rather have listed stocks/bonds in their portfolio.
• ETF includes almost every investing asset class including commodities or currencies, whereas mutual fund has stocks and bonds in their investment basket.
• ETF can be bought and sold at any time of the day, in contrast, mutual funds settle after market close.
• Transaction of ETF done at prevailing market price anytime, but mutual fund can only be purchases from fund house at the NAV price, fixed at the end of trading day.
• Liquidity of ETF have higher as compared to mutual funds.
• Operating expenses for ETF is lower than a mutual fund.
• Investors can place different types of order for buying ETFs like stop-loss order, buy on margin etc, as they are traded like stocks. This facility is not available with mutual funds.
• ETF provide more tax benefits as compared to mutual funds.

So, after going through differences between both the investment scheme, you will be able to make better investment decisions. ETFs are only 25 years old investment instruments, growing in popularity exponentially. 

Happy Investing!

A mutual fund, as the name suggests, is a pool of funds collected from investors to invest in financial instruments.

An Exchange Traded Fund (ETF) is a marketable security that tracks a commodity, bond or an index or a basket of assets. ETFs are listed and traded on a securities exchange.

Mutual funds and ETFs vary on the following basis:

• Fractional Shares- Mutual funds have fractional shares, whereas ETFs don’t.
• Costs involved- The average expense ratio of mutual funds is high as compared to ETF’s.
• Management style- Mutual funds are actively managed while ETFs are managed passively.
• Tax efficiency- ETFs are considered to be more tax efficient
• Demat account- ETFs require a demat account, whereas mutual funds don’t.
• Transaction price- Mutual funds are traded at NAV and ETFs are traded at the quoted price.

Exchange traded fund: An ETF, or exchange traded fund, is a security which tracks an index, a commodity, bonds, or a basket of assets, just like an index fund.

Mutual Funds: These are investment schemes, usually run by an asset management company (AMC). A group of people are brought together by AMC to invest their money in stocks, bonds and other securities.

Difference between ETFs and mutual funds:

• Unlike mutual funds, ETF trades like a common stock on a stock exchange. So ETFs experience price changes throughout the day as these are bought or sold
• ETF's have higher daily liquidity and lower fees than mutual funds
• ETF's do not have net asset value (NAV) calculated once at the end of every day like mutual funds
• ETF's have lower management fees than as compared to mutual funds- This is because ETF's do not require much attention of the fund managers

Mutual funds are better than ETF's in terms of overall returns. Also as per the investor's risk appetite, returns and investment objective there are quite many options available for the investors investing in the mutual funds.

Investing in ETF:

ETFs can be used for speculative trading, such as short selling. You can also trade on margins. So using ETF you can entire market as though it were a single stock.

Exchange Traded Funds is a basket of stocks or securities of index which can be traded over exchange. These funds have composition same as the index such as Sensex, Nifty, etc. These funds are passively managed funds and their returns usually mirror the returns provided by various indices.

Some key similarities and differences between mutual funds ETF are:

·     ETFs can be purchased or sold during trading hours at real time prices determined by demand and supply forces. It also allows investors to sell their funds short. On the other hand, Mutual Fund units can only be bought or sold at the NAV, which is determined at the close of trading hours each day.

·     ETF are passively managed funds that just mirror the strategies of their indices like NIFTY whereas mutual funds are actively managed by a fund manager. Changes are made in the holdings of the fund according to the market scenario.

·     ETFs have lower management fees as compared to Mutual Funds. In India, management fees range between 0.5%p.a to 2.00%p.a for Mutual Funds and approximately around 0.8% for ETFs. The reason behind this difference is because ETFs do not need active participation by the Fund Managers.

·     ETF can be bought or sold anytime like the stocks and investor can gain from the price differences.

·     Some portion of both the funds is held in cash or money market securities for providing liquidity to investors.

·     A demat account needs to be opened for investing in ETF whereas for investing in mutual funds there is no such requirement.

Mutual Funds are a better way of investing as it enables the investor to benefit from the expertise and skills of the fund manager and earn returns that exceed that of the index rather than simply mirror them, at a marginally higher fee. In India, mutual fund returns have outperformed Nifty and Sensex returns in the long run. They are also one of the few instruments that are suitable to different types of investors having diverse investment objectives.

Exchange Traded Funds (ETFs):

ETFs or Exchange Traded Funds are passively managed mutual funds. ETFs are not actively managed by Fund Managers and their returns usually mirror the returns provided by various indices. Example, Investment in the Nifty ETF will track Nifty and give you returns similar to Nifty.

Mutual Funds (MFs):

A Mutual Fund is a vehicle for investing in stocks or bonds. Mutual Funds pool money from multiple investors and invest this pool in stocks, bonds and other securities. The proportional share of the fund’s gains is shared among the investors.

Key Differences:

• ETFs have lower management fees as compared to Mutual Funds. In India, management fees range between 0.5%p.a to 2.00%p.a for Mutual Funds and approximately around 0.8% for ETFs. The reason behind this difference is because ETFs do not need active participation by the Fund Managers.
• ETFs can be purchased or sold during trading hours at real time prices determined by demand and supply forces. It also allows investors to sell their funds short. On the other hand, Mutual Fund units can only be bought or sold at the Net Asset Value (NAV), which is determined at the close of trading hours each day. Short selling of MF Units is also not allowed.

Mutual Funds are a better way of investing as it enables the investor to benefit from the expertise and skills of the fund manager and earn returns that exceed that of the index rather than simply mirror them, at a marginally higher fee. In India, mutual fund returns have outperformed Nifty and Sensex returns in the long run. They are also one of the few instruments that are suitable to different types of investors having diverse investment objectives.

Hope this helps!