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What are ETFs? Every question answered here
An exchange-traded fund consists of shares that constitute widely followed indices such as NSE Nifty 50 and BSE Sensex. If an ETF is tracking a particular index, then that index would contain the same stocks like that of the index, and their weightage shall also be the same. Additionally, the ETF may also invest in money market instruments for the sake of liquidity. ETF returns are generally predictable and will be close to what its underlying index earns.
Nevertheless, despite many ETFs track the same index, their returns will not be the same as their debt holdings differ, which affects their returns. The units of ETFs are traded on stock exchanges, similar to shares.
What are Index Funds?
The asset allocation of an index fund tries to replicate that of a popular index that it is trying to emulate. As index funds are not having liquidity of their own, hence they invest more in liquid securities. Therefore, index funds having tracking errors. The deviation of the returns that an index fund would generate from the returns of its underlying index is directly proportional to the tracking error.
How to choose between an Index ETF and an Index Fund?
Passive investing in the most basic sense is about putting your money in equity mutual funds. The catch is that it is only passive as far as you are concerned but not actually passive because your fund manager is still making active investment decisions.
What are ETFs? Every question answered here
An exchange-traded fund consists of shares that constitute widely followed indices such as NSE Nifty 50 and BSE Sensex. If an ETF is tracking a particular index, then that index would contain the same stocks like that of the index, and their weightage shall also be the same. Additionally, the ETF may also invest in money market instruments for the sake of liquidity. ETF returns are generally predictable and will be close to what its underlying index earns.
Nevertheless, despite many ETFs track the same index, their returns will not be the same as their debt holdings differ, which affects their returns. The units of ETFs are traded on stock exchanges, similar to shares.
What are Index Funds?
The asset allocation of an index fund tries to replicate that of a popular index that it is trying to emulate. As index funds are not having liquidity of their own, hence they invest more in liquid securities. Therefore, index funds having tracking errors. The deviation of the returns that an index fund would generate from the returns of its underlying index is directly proportional to the tracking error.
How to choose between an Index ETF and an Index Fund?
Passive investing in the most basic sense is about putting your money in equity mutual funds. The catch is that it is only passive as far as you are concerned but not actually passive because your fund manager is still making active investment decisions.