Index fund vs ETF
As more and more people in Indian starting to invest in stocks and mutual funds , the interest in Index fund as well as ETF has seen significant rise. In this article lets understand the basics of Index fund vs ETF and find out which option is best for you to invest in.
What is an ETF in India?
ETF stands for exchange traded fund. ETF created to matchor track the components of an Index like NIFTY 50/Sensex etc. For example the HDFC Nifty 50 ETF is created to track the performance of NIFTY 50.
Basically when you invest in an ETF then you are investing your money in the Index that the ETF is tracking. So if you for example invest in HDFC Nifty 50 ETF the fund manager of the ETF will invest in the portfolio which looks exactly similar to NIFTY 50 considering the weightage of the stocks in the Index.
So your investment returns will depend on the performance of the Index, if the Index goes up then your returns go up. If the Index goes down then your returns will go down.
Features of an ETF
- An exchange traded fund (ETF) is a basket of securities that trade on an exchange, like a stock trading in the exchange
- ETF share prices goes up and down all day as the ETF is bought and sold just like a stock.
- ETFs can contain all types of investments including stocks, commodities, or bonds; ETF can be created for to track any underline security.
- ETFs offer low expense ratios and fewer brokerage(depending on the stock broker) than buying the stocks individually.
How to buy an ETF?
To buy an ETF, you will need to have a demat account and trading account with a broker. From the demat account you can buy any ETFs from the exchanges.
What are the ETFs available in India for purchase?
Below are the list of ETFs available of NSE for investors to purchase:-
|ISSUER NAME||NAME||SYMBOL||UNDERLYING Index||LAUNCH DATE|
|Edelweiss AMC||Edelweiss Exchange Traded Scheme – NIFTY||NIFTYEES||NIFTY 50 Index||8-May-15|
|ICICI Prudential AMC||ICICI Prudential NIFTY ETF||ICICINIFTY||NIFTY 50 Index||20-Mar-13|
|Kotak AMC||Kotak NIFTY ETF||KOTAKNIFTY||NIFTY 50 Index||2-Feb-10|
|Motilal Oswal AMC||MOSt Shares M50||M50||NIFTY 50 Index||28-Jul-10|
|Quantum AMC||Quantum Index Fund – Growth||QNIFTY||NIFTY 50 Index||10-Jul-08|
|Religare AMC||Religare Invesco NIFTY ETF||IVZINNIFTY||NIFTY 50 Index||13-Jun-11|
|SBI AMC||SBI ETF NIFTY||SETFNIF50||NIFTY 50 Index||23-Jul-15|
|UTI AMC||UTI NIFTY ETF||UTINIFTETF||NIFTY 50 Index||3-Sep-15|
|Birla Sun Life AMC||Birla Sun Life NIFTY ETF||BSLNIFTY||NIFTY 50 Index||21-Jul-11|
|ICICI Prudential AMC||ICICI Prudential CNX 100 ETF||ICICINF100||NIFTY 100||20-Aug-13|
|Kotak AMC||Kotak Banking ETF||KOTAKBKETF||NIFTY Bank||4-Dec-14|
|SBI AMC||SBI ETF Banking||SETFNIFBK||NIFTY Bank||20-Mar-15|
|Motilal Oswal AMC||MOSt Shares M100||M100||NIFTY Midcap 100||31-Jan-11|
|SBI AMC||SBI ETF NIFTY Junior||SETFNN50||NIFTY Next 50||20-Mar-15|
|Kotak AMC||Kotak PSU Bank ETF||KOTAKPSUBK||NIFTY PSU BANK||8-Nov-07|
|ICICI Prudential AMC||ICICI SENSEX Prudential Exchange Traded Fund||ICICISENSX||S&P BSE Sensex||10-Jan-03|
|UTI AMC||UTI Sensex ETF||UTISENSETF||S&P BSE Sensex||3-Sep-15|
|Reliance Nippon Life Asset Management Limited||Reliance ETF NIFTY BeES||NIFTYBEES||NIFTY 50 Index||28-Dec-01|
|Reliance Nippon Life Asset Management Limited||Reliance ETF NIFTY 100||NETFNIF100||NIFTY 100||22-Mar-13|
|Reliance Nippon Life Asset Management Limited||Reliance ETF Bank BeES||BANKBEES||NIFTY Bank||27-May-04|
|Reliance Nippon Life Asset Management Limited||CPSE ETF||CPSEETF||NIFTY CPSE Index||28-Mar-14|
|Reliance Nippon Life Asset Management Limited||Reliance ETF Dividend Opportunities||NETFDIVOPP||NIFTY Dividend Opportunities 50||15-Apr-14|
|Reliance Nippon Life Asset Management Limited||Reliance ETF Consumption||NETFCONSUM||NIFTY India Consumption||3-Apr-14|
|Reliance Nippon Life Asset Management Limited||Reliance ETF Infra BeES||INFRABEES||NIFTY Infrastructure||29-Sep-10|
|Reliance Nippon Life Asset Management Limited||Reliance ETF Junior BeES||JUNIORBEES||NIFTY Next 50||21-Feb-03|
|Reliance Nippon Life Asset Management Limited||Reliance ETF PSU Bank BeES||PSUBNKBEES||NIFTY PSU BANK||25-Oct-07|
|ICICI Prudential AMC||BHARAT 22 ETF||ICICIB22||S&P BSE BHARAT 22 index||28-Nov-17|
What are the charges applicable while purchasing an ETF?
when you buy an ETF, effectively you are buying a basket of stock which trading as an ETF. so can consider an ETF to as good as stock while buying/selling. So to purchase an ETF you will need to pay the applicable fees-
- Brokerage(including GST)
- Stamp duty
- any other charge(depending on broker)
What is an Index fund in India?
Index funds are just like ETF which invest your money in a basket of securities which is aligned to an underline securities/index. The difference between Index fund and ETF is that Index funds are not actively traded in exchanges! Like mutual funds Index funds trade end of day basis and Index fund has a NAV which is reported on an end of day basis.
Index fund have an experience ratio like normal mutual funds although very low as compared with a normal mutual fund. Similar to ETF , an Index fund’s performance depends on the performance of the Index.
Features of an Index fund
- An index fund is a portfolio of stocks or bonds designed to mimic the composition and performance of an index.
- Index funds have lower expenses and fees than actively managed mutual funds.
- Index funds are managed on an end of day basis as opposed to ETFs which are traded in market like stocks.
How to buy an Index fund
You can buy an index fund just like mutual fund. You don’t need a demat account to buy an Index fund. You can simply buy an Index fund from an AMC’s website or mutual fund platforms like PayTM Money and Grow.
What Index fund are available in India for purchase?
Below are the Index funds available for purchase from different AMCs-
|Aditya Birla Sun Life Index||NIFTY 50 Total Return Index|
|DSP Nifty 50 Index Fund||NIFTY 50 Total Return Index|
|DSP Nifty Next 50 Index Fund||NIFTY Next 50 Total Return Index|
|Franklin India Index NSE Nifty||NIFTY 50 Total Return Index|
|HDFC Index Fund Nifty 50 Plan||NIFTY 50 Total Return Index|
|HDFC Index Sensex||S&P BSE Sensex Total Return Index|
|ICICI Prudential Nifty Index Fund||NIFTY 50 Total Return Index|
|ICICI Prudential Nifty Next 50 Index Fund||NIFTY Next 50 Total Return Index|
|ICICI Prudential Sensex Index Fund||S&P BSE Sensex Total Return Index|
|IDBI Nifty Index||NIFTY 50 Total Return Index|
|IDBI Nifty Junior Index||NIFTY Next 50 Total Return Index|
|LIC MF Index Nifty||NIFTY 50 Total Return Index|
|LIC MF Index Sensex||S&P BSE Sensex Total Return Index|
|Motilal Oswal Nifty Bank Index Fund||NIFTY Bank Total Return Index|
|Motilal Oswal Nifty Midcap 150 Index Fund||NIFTY Midcap 150 Total Return Index|
|Motilal Oswal Nifty Smallcap 250 Index Fund||NIFTY Smallcap 250 Total Return Index|
|Nippon India Index Nifty||NIFTY 50 Total Return Index|
|Nippon India Index Sensex||S&P BSE Sensex Total Return Index|
|SBI Nifty Index||NIFTY 50 Total Return Index|
|Tata Index Nifty||NIFTY 50 Total Return Index|
|Tata Index Sensex||S&P BSE Sensex Total Return Index|
|Taurus Nifty Index||NIFTY 50 Total Return Index|
|UTI Nifty Index||NIFTY 50 Total Return Index|
|UTI Nifty Next 50 Index Fund||NIFTY Next 50 Total Return Index|
What are the charges applicable while purchasing an Index fund in India?
When you purchase an Index fund; you just pay the expense ratio for the mutual fund. Generally the expense ration for Index funds are very low as compared to normal mutual funds which is around 0.10% – 0.20%.
Index fund vs ETF which is better?
If you are investing in stocks already and have a demat/trading account with you then it makes sense to buy ETF directly from exchanges. but if you don’t have a demat account then you can stick to buying Index funds from a any mutual fund house rather than creating a demat account only for the purpose of buying ETFs.
Index fund vs mutual fund – what is the difference?
Index fund is just another type of mutual fund. Index fund invest your money in an underline index where other types of mutual funds directly invest in stocks or other securities.
What is Tracking Error in ETFs?
Tracking error is the difference in actual performance between an ETF and its corresponding benchmark Index. The tracking error can be viewed as an indicator of how actively/properly a fund is managed and its corresponding risk level. Evaluating a past tracking error of a fund manager may provide insight into the level of benchmark risk control the fund manager.
Why should you invest in an ETF or Index funds
Investing in ETF/Index fund reduces your risk of over exposing your investment in one stock/security. Indexes in general performs really well over the long run. ETF/Index funds have relative low levels of expenses and provide good liquidity for the investors.