ETFs vs Index MFs?

Can anyone help me understand the difference between ETFs and Index MFs? For long term investors, is there a clear winner?

Basically Comparing:

Niftybees with Nippon India Index Fund Nifty plan
Bankbees with Motilal Oswal Nifty bank index fund
And so on…

In very simple terms, everything else being equal:
ETFs have a bit higher initial cost (impact cost, brokerage etc.) but low recurring cost (low expense ratio).
Index fund have low initial cost, but slightly higher recurring cost.

So if you just want to buy lumpsum and forget it ETF would be a better choice, if you want to invest systematically every month for long period, index fund would be more suitable.

All this with assumption that both ETF and index fund you are looking at have proven low tracking error

Also if you are trying to time the market (buy on intra day dip) ETF is better choice as you can buy during the day against day end NAV of index funds

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Both are basically the same with some minor differences. ETFs are passively managed and their expense ratio is lower than index mutual funds. At the same time, ETFs can be NAV and price difference which means that when you go to buy or sell ETF units then instead of NAV you can get the market price which can be lower or higher. Such complication never happens in mutual funds. Both ETF and mutual funds can have tracking errors, so you need to check for those. Usually, mutual funds have better liquidity and this makes them a more suitable product.


Thanks, I think etfs will also have a high exit cost as the liquidity as not so great.

Since we are on this topic, when’s zerodha’s index funds/ etfs going live. Saw Nithin in some interview mentioning it would take some time. @siva - any visibility, and also your opinion on the original post

Oh yes, impact cost is on both legs, buy and sell.

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Will take some time :slightly_smiling_face:

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@abcd5662 Go with Index funds. Becz ETF’s have liquidity issue and most of the time you will end up buying at high price than NAV.

Index funds :+1: are better than ETF’s.

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Index funds are always better than ETF’s for passive long term investors.

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