ETFs vs Index Funds

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Well, Index Fund is an Umbrella term. Index Funds replicates an underlying index, that’s why less workforce is needed and expense ratio is cheaper compared to actively managed funds. Actively managed funds always consider one index as a benchmark index and they just try to beat the performance of the index. And Index Funds try to track the index. And like other systems, this system is not also error free. We call em tracking error. More info regarding tracking error will be found in https://www.investopedia.com/terms/t/trackinger...
There are multiple types Index Funds. One kind are plain old vanilla mutual funds. Yes, there are many fund houses have Index Funds in their arsenal. One can subscribe them/invest in them by visiting the respective fund houses/mutual fund platforms like Groww, Kuber, Coin, Fundsindia etc/agents(these days advisors can’t sell and sellers can’t advise). Another kind comes in form of ETFs or so called Exchange Traded Funds. Index Fund ETFs can only be purchased if one has a Trading cum Demat account.

The term ETF is itself an umbrella term for its own niche segment. It includes Index ETFs ex NIFTYBEES, Commodity ETFs ex GOLDBEES, Actively managed ETFs (Sounds contradictory but yes they exist. https://www.investopedia.com/terms/a/actively-m...) but they don’t exist in India sadly but https://etfdb.com/themes/actively-managed...s/ will give a list of em. In India there are two kind of ETFs, IndexETFs and GoldETFs. Well that’s technically wrong, there are LIQUIDBEEs and LIQUIDETF by DSP (There is nothing liquid about it though, very low volume thing, stick to LIQUIDBEEs only), https://support.zerodha.com/tickets/20210310292...

Along with the ETFs shared above, there are couple of other noteworthy ETFs. Ex: LIQUIDBEES (again from Nippon India Mutual Fund, very liquid and it is called cash equivalent. 90% margin is given when pledged with just 10% haircut) https://support.zerodha.com/category/trading-an... is a very good article on it, SHARIABEES (Shariah compliant securities are listed only, derived from Nifty 50 index. Constituents are Infosys Ltd (26.88%), Tata Consultancy Services Ltd. (7.60%), Hindustan Unilever Ltd. (11.02%), Asian Paints Ltd. (5.94%), HCL Technologies Ltd. (5.71%), Titan Company Ltd. (3.40%), Nestle India Ltd. (3.32%), Tech Mahindra Ltd. (3.29%), Dr. Reddy’s Laboratories Ltd. (3.11%), Grasim Industries Ltd. (2.70%) https://www1.nseindia.com/content/indices/Facts... will give more detailed info. Warning very iliquid) etc.

Top ETFs with most volume as per today’s info (10th March 2021) are GOLDBEES (52,86,384), CPSEETF, NETFIT, NIFTYBEES, HDFCMFGETF, ICICIGOLD, LIQUIDBEES data collected from https://www.nseindia.com/market-data/exchange-t... (It changes everyday).

Pros and Cons of ETFs
Pros:
1) +ADD/EXIT in Market Hour: We can buy at market price. Index crashed. You need to invest. What to do? You buy ETFs of your choice. And some how we can anticipate a crash, what to do? We sell. In mutual funds there are a lot of obstacles. Ex: https://www.moneycontrol.com/news/business/npci...
2) +Immediately Reinvested Dividends
https://www.investopedia.com/articles/exchanget...
+Cons

1) +Brokerage, taxes and AMC BSDA guidelines allows BSDA (Basic Services DEMAT Account) holders to pay 0 as AMC if holding value lies below 50k INR, 100INR if holding value lies in between 50k and 2lakh INR. Above that threshold BSDA holder needs to pay AMC as per broker’s discretion(https://www.sebi.gov.in/media/press-releases/au...). In this aspect normal mutual funds become very efficient. Long term returns are almost comparable to ETF n non ETF Index Funds. If portfolio is in negatives, it just pains to pay taxes, brokerage and AMCs etc.
2) +Speculative Trades As the asset can be liquidated quite easily, one might not be able to contain ones’ emotion. That will incur losses.
3) +Necessity of having min two accounts so no BSDA benefits and more expenses One acc will be for speculative trading and other will be for investments. That’s okay for stock holding. I am not sure for investment in mutual funds.
4) +Brokerage House Defaults That’s like being on edge 24X7, which we avoided by being into mutual funds in the first place.
🙂🙂🙂🙂

Copied from my own comment on https://www.desidime.com/news/top-5-etfs-in-ind...

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bikidas2060 wrote:

I didn’t know about active index funds 😁😁😁 seriously man, that’s weird.

@@[email protected]@ bro check this CNBC smart money episode


It instantly reminded me of ur blog so sharing here (I wanted to put in wiki but better leave that judgment call to you 🙂)

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pingpong wrote:

@@[email protected]@ bro check this CNBC smart money episode


It instantly reminded me of ur blog so sharing here (I wanted to put in wiki but better leave that judgment call to you 🙂)

Rakh diye bro. 🙏🙏🙏

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