Top 4 Reasons to Consider ETFs Instead of Mutual Funds

Overview of ETFs and Mutual Funds

There are many similarities between mutual funds and exchange-traded funds (ETFs). Each type of fund includes a mix of multiple alternative goods and is characterized by a standard approach to diversify for buyers.

Top 4 Reasons to Consider ETFs Instead of Mutual Funds

However, there are major variations in the way they are managed. ETFs will be traded like stocks, while mutual funds will be bought entirely on every purchase and day of sale, mostly based on the calculated price. Mutual funds are also actively managed, this means that the fund supervisor makes a selection about how to allocate goods within the fund. ETFs, alternatively, are normally passively managed and are mostly based on specific market indices. ETFs are sold like stocks in the market.

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Market Analysis for ETFs Instead of Mutual Funds

Investments in developed capital markets like the US invest extensively in exchange-traded funds (ETFs). However, very few investors in India still show interest in ETFs. One of the main reasons for this is that there is not much awareness about ETFs in the country. After reading these points, we will be able to understand why ETFs instead of Mutual Funds. 

ETF managers do not try to beat index investment style and performance but rather try to replicate it. ETFs trade like ordinary stocks on the stock exchange, unlike ordinary mutual funds. ETFs invest in a set of stocks and usually track a particular index.

Index funds also track an index like an ETF, but ETFs do not have that much flexibility. For example, you are not in control of buying a mutual fund unit. For this, you will have to request the fund manager. But ETFs are freely traded in the market and investors own them. Can buy and sell it at per convenience. Like ordinary equity shares, the market price of ETFs is available in real-time, whereas in mutual funds we get NAV after the end of the trading of the stock market. So if an investor is entering the market and does not know much about the financial markets, then he should invest in ETFs.

Reasons to Consider ETFs Instead of Mutual Funds

A cheap and convenient option for all investors.

  • ETFs keep an annual total expense ratio (TER) of just 0.05 1 percent to 0.10 percent, while TER of actively managed mutual funds can go up to 3 percent. Obviously, ETF investment is much cheaper.
  • You can also buy only one share in ETF. In contrast, a minimum investment of Rs 100 is required in the case of a lump sum or SIP in index funds. Investors can sell short or buy on margin.
  • The success of a mutual fund depends on the skill of the fund manager. The fault of the fund manager can cause huge losses. Since the ETF only tracks the index, there is no scope for a fund manager's mistake here.
  • Better performer. The choice of what a mutual fund is is not easy. But in terms of ETFs, we have a track record of 16% CAGR in a row. In such a situation, there is no problem with trusting anyone else.

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