INSUBCONTINENT EXCLUSIVE:
Securing your financial future is very critical, and while there are several options available that will generate adequate returns, ETFs and
mutual funds are the more popular ones
At a glance, both options look very similar but on close analysis, it can be found that both are different
The main difference between the two is that ETFs can be bought through a brokerage like stocks and not through a fund management company
like mutual funds.The choice between an ETF and a mutual fund is often based on the convenience of the buyer
If a buyer already has a brokerage account it becomes easy and convenient to buy an ETF and if they do not it is easier to opt from a mutual
fund instead.What is an Exchange-Traded Fund (ETF)?An ETF is an investment fund that is traded on the stock exchange
The assets that are held under an ETF are commodities, stocks, and bonds
ETFs or Exchange Traded funds are passively managed funds that merely replicate an index
These funds usually hold all the stocks in the same weight as they are held by the underlying index
An ETF can be used for the purposes of hedging, equitising cash, and arbitrage
ETF shareholders get a part of the profits on the dividends paid and interest earned.Here are a few advantages of ETFs:Investors can sell
short or buy on margin and as there are no minimum investment requirements; an investor can also purchase just one share.The commission that
is paid to the broker while buying or selling ETFs is the same that would be paid for a regular order.It is similar to a mutual fund as it
can be bought or sold at a cost that varies throughout the day
All transactions are carried out in real-time.What are Mutual Funds?Mutual Funds are professionally managed funds that collect money from
various investors and then invest in diversified holdings
The investment portfolio includes bonds, money market instruments, stocks, or a combination of all
Each mutual fund investment scheme has a defined Net Asset Value (NAV) that is derived after dividing the total investment of a mutual fund
by the number of investors
An investor owns a share of the mutual fund and incurs the same profits or losses as the rest of the investors.Mutual Funds vs ETFs1)
FlexibilityETFs are freely traded in the market, which means they can be bought or sold at the convenience of the investor
Their market price is available in real-time just like ordinary equity shares.Mutual funds units can be bought or sold only by placing a
request with the fund house
NAV indicates the price of one unit of a mutual fund.2) Fees and expensesETFs just replicate the performance of an index
They do not need active management, which is why the fees and expenses associated with ETF investments are low.In the case of mutual funds,
the fund manager actively takes decisions on behalf of the investors
As a result, the fund management expenses are higher.3) CommissionsETFs are traded like any other share on the exchange — investors need
to pay commissions on the sale and purchase of units as per the prevailing rules.In the case of mutual funds, there is no need to pay any
commission for the sale and purchase.4) ManagementMutual funds are actively managed by an experienced fund manager who takes all the
investment decisions on behalf of the investors.In the case of ETFs, the funds merely track the market index
There are some actively managed ETFs, however, they have a higher expense ratio.5) Lock-in periodETFs do not have a minimum holding period,
and the investors are free to sell the investment as and when they like.Many mutual funds come with a lock-in period of 3 years
During this timeframe, it is not possible to liquidate the investment.When it comes down to deciding which of the two options is best for
you, it is imperative to consider 5 factors —risk-management appetite, ease to liquidate the assets, your financial goals, your tax-saving
strategy, and investment horizons.Once you have taken these factors into consideration, it will become evident to you which of the two
investment options is more suitable.ETFs offer you flexibility and higher returns in the short run
Mutual funds require investors to stay invested for an extended period of time to help create a corpus for the future.Keywords: s, Mutual
Funds, Financial Investments
