1. For a long-term investor, open-ended Index Funds are better than Exchange Traded Funds :-
a) No need of demat and broking accounts.
b) No need to wait for a market buyer/seller.
c) No worry of market illiquidity.
d) No worry of premium buy/discount sale.
e) Lesser brokerage/demat charges.
b) No need to wait for a market buyer/seller.
c) No worry of market illiquidity.
d) No worry of premium buy/discount sale.
e) Lesser brokerage/demat charges.
2. In the long run, these advantages far surpass the inherent tracking error and expense ratio in index funds, and also helps in "preventing" market-trading mentality among investors.
3. While investing is an individual's own prerogative, the concept is explained.
(I) ETFs:-
A) Pros:-
1. They're lesser expensive than index funds.
2. They allow you to take advantage of the market's intra-day movements.
3. Their tracking error is much lower than index funds.
B) Cons:-
1. You need a trading account with a broker, and a demat account too.
2. You have to bear the brokerage charges and demat account fees.
3. You may have to bear any adverse price due to ETF's limited liquidity, both during buying and selling.
A) Pros:-
1. They're lesser expensive than index funds.
2. They allow you to take advantage of the market's intra-day movements.
3. Their tracking error is much lower than index funds.
B) Cons:-
1. You need a trading account with a broker, and a demat account too.
2. You have to bear the brokerage charges and demat account fees.
3. You may have to bear any adverse price due to ETF's limited liquidity, both during buying and selling.
(II) Index funds:-
A) Pros:-
1. You don't need a trading account and a demat account to invest in index funds.
2. Hence more investors can access them.
3. You get assured liquidity as you buy and sell through the fund house.
B) Cons:-
1. They're a little more expensive than ETFs.
2. The NAV at which you can buy or sell an index fund becomes available only at the end of the day.
3. Hence you can't benefit from any intra-day day market upsurge.
4. Their tracking error is much higher than ETFs due to higher cash component and higher expense ratio.
A) Pros:-
1. You don't need a trading account and a demat account to invest in index funds.
2. Hence more investors can access them.
3. You get assured liquidity as you buy and sell through the fund house.
B) Cons:-
1. They're a little more expensive than ETFs.
2. The NAV at which you can buy or sell an index fund becomes available only at the end of the day.
3. Hence you can't benefit from any intra-day day market upsurge.
4. Their tracking error is much higher than ETFs due to higher cash component and higher expense ratio.
4. Overall, the brokerage fee, demat charges and pain of liquidity to maintain an ETF portfolio are more than the expense ratio, tracking error and ease of liquidity to maintain an index fund portfolio.