ETF vs Mutual Funds

ETF vs Mutual Funds

Nowadays, Mutual Funds are the favorite one among most of the people. Bank Interest rates are ticking down and the India Inflation rate also around 3 - 4 %. Many of us, keen to invest in mutual funds with a simple knowledge or as plain (Not known). Last week, one of the reader requested an answer in Quora.com , Is it the time to invest in mutual funds and how the mutual funds differ from ETF (Exchange Traded Fund). I had posted my answer on reply. So, that's why i am looking here to share the related information in my blog about ETF and mutual funds.

Generally, Mutual funds categorized as Two:

• Debt Funds

• Equity Funds

Debt funds are good, if you are looking like as a Bank FD (Fixed Deposit) or RD (Recurring). It gives a solid returns more than the Bank deposits. Indexation Benefit also available on LTCG (Long term Capital Gains), if you hold more than 3 years.

Similarly, Equity funds have a LTCG benefit, if you hold on your investment more than one year. Recently, BSE (Bombay Stock Exchange) is making a case for reinstating of long term capital gains on equity investments. (See here:  Remove long-term capital gains tax exemption: BSE )
Popularly, Equity funds are very helpful for the long term and gives a better return, stick with your financial goals.

( image courtesy: Daria Shevtsova@pexels.com )

However apart from mutual funds, ETF is also a fashionable word for the new comers on investing. ETF is nothing but, an exchange traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism. ETF are also based on market index (Sensex, Nifty), Sector wise, Gold etf, and few more.

ETF vs Mutual Funds - How it differ ?

You should understand this,

• Exchange Traded Funds (ETF) will trade throughout the day (Trading) like shares, but mutual funds trade only at the end of the day at its NAV (Net asset value).

• ETF have a charge of trading or broking commision, while buy or sell. on the other hand, mutual fund comes with the charge of Expense ratio on your investment.

• Most ETFs track to a particular index and therefore have lower operating expense than actively invested mutual funds.
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Kindly, share your views or comments with a smile :)

Rich Investing - www.richinvesting.blogspot.com