Are Index Funds better than ETF’s? Would like to know which is better option?
Not necessarily but in our market, yes they are better than ETFs.
ETFs are sometimes illiquid and often trade away from their NAV, which doesn’t happen in case of index funds.
If you want to be hands-off - index funds.
If you intend to be more hands and if your investing involves frequent entries and exits, ETFs would probably be better. This post should help
In my opinion index funds are simply better at least in the current scenario. The ETFs are basically units which will be traded among investors, funds houses and HNIs, since the circle is small, there can be liquidity issues and you not get the best price while selling even when the NAV is high, although there are steps taken to ensure that the price stays near the NAV. On the other hand, index funds do not suffer from this problem as there is immense liquidity in index. On top of that you need not even open a demat account for an index funds. Although, the situation for ETFs might improve in the coming decade as retail participation in the market goes up.
My personal opinion, ETFs are better. That doesn’t mean that index funds are bad either.
Apart from all of the points raised by various users,
- ETF expense ratio would be lower than an Index Fund.
- Exit load in case it is applicable for index fund.
Disc: I am a staunch believer in Index ETF and invested in Index ETF so my views could be biased.