1. For a long-term investor, open-ended Index Funds are better than ETFs as there is :-
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.
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 prerogative, the concept is explained.
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.
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 prerogative, the concept is explained.
(I) ETFs:-
A) Pros:-
1. Lesser expensive than index funds.
2. Allow you to take advantage of the market's intra-day movements.
3. Tracking error is much lower than index funds.
B) Cons:-
1. Need a trading account with a broker, and a demat account too.
2. Bear the brokerage charges and demat account fees.
3. Bear any adverse price due to ETF's limited liquidity, both during buying and selling.
A) Pros:-
1. Lesser expensive than index funds.
2. Allow you to take advantage of the market's intra-day movements.
3. Tracking error is much lower than index funds.
B) Cons:-
1. Need a trading account with a broker, and a demat account too.
2. Bear the brokerage charges and demat account fees.
3. Bear any adverse price due to ETF's limited liquidity, both during buying and selling.
(II) Index funds:-
A) Pros:-
1. No need of a trading account and a demat account to invest in index funds.
2. Hence accessed by more investors.
3. Assured liquidity as you buy and sell through the fund house.
B) Cons:-
1. A little more expensive than ETFs.
2. 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 market upsurge.
4. Tracking error is much higher than ETFs due to higher cash component and higher expense ratio.
A) Pros:-
1. No need of a trading account and a demat account to invest in index funds.
2. Hence accessed by more investors.
3. Assured liquidity as you buy and sell through the fund house.
B) Cons:-
1. A little more expensive than ETFs.
2. 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 market upsurge.
4. 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.