Table of Contents
A Short Comparison Between ETF Vs Mutual Funds:-
|Exchange-traded funds (ETFs)
|Involves high minimum
|Needed only 1 share
|Includes active management
|Includes passive management
|Can’t do it directly, must-visit distributor
|Directly through a broker
|Change only at the end of the trading day
|Change continuously during the trading day
|Only Bank Account
|Bank Account with Demat Account
As mentioned in the above table, the ETF and Mutual Fund both are important vehicles for investment. But now the matter is what is the best option to invest in ETF vs Mutual Fund. Now in this movement, one must see that is capable to bear high risk or not, able to do high investment or less, etc.
Now let’s get deeper about the ETF as well as the Mutual Fund.
What do you mean by Exchange-Traded Funds (ETFs): –
Exchange-traded funds, generally known as ETFs. It is nothing more than the collection of various securities i.e., money market instruments, shares, bonds, etc.
ETF funds are very much like mutual funds as they both have multiple holdings, they both charge fees, open-ended funds, pooled together money of many investors, and ETF and mutual funds both provide diversification benefits.
Types of Exchange-traded Funds
There are basically six types of ETFs which are listed below.
These are typically designed to provide exposure to different types of work.
It helps to reduce the hustle of the investors as these securities reduce the hustle to purchase any specific currency as it allows investors to participate in currency market transactions.
Such funds are uniquely designed in such a way that share prices move in the opposite direction of the inverse ETFs shares.
These are the most useful funds as they always try to minimize price risks and enhance returns by investing in short-term government securities.
Such securities allow investors to purchase precious metals without making it necessary to purchase in physical.
Such funds are designed to track the performance of their underlying index.
What are Mutual Funds?
It is the type of investment vehicle where many investors pool their money to invest in stocks, bonds, etc. and to earn returns on their capital over a period. It is done for a fixed time in the way that investors can withdraw their funds only after the maturity period.
There are different types of mutual funds based on structures, needs etc. some of them are mentioned below: –
Types of funds based on assets class:
It is less risky in nature as it invests in assets like government securities and corporate bonds. And its main aim is to provide reasonable returns to investors.
It involves a higher degree of risk. But it would be the right choice to invest if the investor wants to invest for a long time period.
As the name suggests it is the equity and fixed income securities. It is suitable when the investor wants to invest in both equities as well as debt.
Types of funds based on structures:
Open-ended mutual funds
These funds are highly liquid in nature because in this type of fund investors are able to invest on any business day according to their convenience.
Close-ended mutual funds
These are not liquid in nature as their trading is less. Because investors can invest their money in these funds only when it is launched and withdraw only at the time of maturity.
Types of funds based on investment objectives:
These funds are more risky funds as they put their fund in the stock market. So, the investor who is willing to invest for the long term can choose these funds.
These funds help the investors to get stable income. Investors who don’t want to bear high risk can choose this fund.
It deals with the short-term money market instruments such as treasury bills, commercial papers, Certificate of Deposits, etc.
Tax saving funds
As the name suggests it offers tax benefits under Section 80C of the Income Tax Act 1992. One is able to claim a deduction of up to Rs. 1.5 lakh per year by investing in these funds.
Advantages of ETFs Vs Mutual Fund: –
|Exchange-Traded Funds (ETFs)
As the question arises ETF vs Mutual Fund: Which is the best to invest in? Then the simple and perfect answer to them is that if you have proper guide about investment and are able to give their time to investment then, I will suggest they go with Exchange-Traded Funds.
On the other hand, if the person is new in investment and cannot be able to give proper time to investment then obviously, they must go with Mutual Funds.
Let’s get understand it with an example: –
Suppose you have to go to hill station then you have two options in your hand
- Take your car, drive it, and reach your destination
- Book a car with a driver, sit peacefully and reach your destination
We have these two same conditions with ETFs and Mutual Funds. If you want to drive the car then you must bear all the risks yourself, you must concentrate on driving, but the plus point is that you are allowed to take a break whenever you need it. The same thing happens with ETFs.
And the second option is for that type of person who doesn’t want to drive their car themselves; they just want to sit in the backseat and enjoy the ride while doing comparatively more expenses than the first one. These types of people must go with the Mutual Fund because there you just have to invest at the beginning and wait till the maturity period to withdraw the fund.