1. As a DIY investor, differentiating between unique characteristics of Index Fund, Exchange Traded Fund and Fund Of Funds is necessary before choosing them, and Sebi's categorization is very helpful here.
2. An Index Fund is an open-ended fund that invests 95% min. of its total assets in "securities of a particular index" that it is replicating / tracking.
3. An ETF also has the same characteristics, but its units are bought and sold only in the stock exchange.
4. A FoF is an open-ended fund of funds that invests 95% min. of its total assets in "mentioned underlying funds".
5. There can be one or several mentioned underlying funds in a FoF, whether equity-oriented, debt-oriented, gold-oriented, etc., depending on each FoF's offering.
6. For a like-to-like comparison between an ETF and FoF, a DIY investor should, therefore, select an ETF and a FoF that invest 95% min. assets in the same particular index being replicated/tracked.
7. ETF is lesser expensive, has daily direct market access for transactions by an investor at market-related prices, and its tracking error is much lower, although an investor needs to open a trading account and a demat account, bear their charges, and also limited market liquidity at times.
8. FoF is more expensive, has no direct market access for transactions by an investor and a higher tracking error, although there is no need of a trading account and a demat account, while liquidity is assured as transactions are with the fund house directly, albeit at a NAV which becomes available only at the end of the day.
9. If the chosen ETF and FoF are fully comparable in their characteristics, a DIY investor should take a decision for including them in his portfolio by keeping his own brokerage fee, demat charges, TER, tracking error and liquidity needs in mind.
2. An Index Fund is an open-ended fund that invests 95% min. of its total assets in "securities of a particular index" that it is replicating / tracking.
3. An ETF also has the same characteristics, but its units are bought and sold only in the stock exchange.
4. A FoF is an open-ended fund of funds that invests 95% min. of its total assets in "mentioned underlying funds".
5. There can be one or several mentioned underlying funds in a FoF, whether equity-oriented, debt-oriented, gold-oriented, etc., depending on each FoF's offering.
6. For a like-to-like comparison between an ETF and FoF, a DIY investor should, therefore, select an ETF and a FoF that invest 95% min. assets in the same particular index being replicated/tracked.
7. ETF is lesser expensive, has daily direct market access for transactions by an investor at market-related prices, and its tracking error is much lower, although an investor needs to open a trading account and a demat account, bear their charges, and also limited market liquidity at times.
8. FoF is more expensive, has no direct market access for transactions by an investor and a higher tracking error, although there is no need of a trading account and a demat account, while liquidity is assured as transactions are with the fund house directly, albeit at a NAV which becomes available only at the end of the day.
9. If the chosen ETF and FoF are fully comparable in their characteristics, a DIY investor should take a decision for including them in his portfolio by keeping his own brokerage fee, demat charges, TER, tracking error and liquidity needs in mind.