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.
- 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 than actively invested mutual funds.