ETF VS Mutual Funds: Know the Difference

1. ETF VS Mutual Funds: Know the Difference Mutual Funds and ETFs invest in pooled investment in a variety of securities such as debt, equity or commodities. Traders are often confused to choose an investment. This article presents a comparative analysis between ETFs and mutual funds, with the sole aims of helping visitors pick the best service and the best stock broker in India for them. What is an ETF? ETF stands for Exchange Traded Fund. ETFs are passively managed fund types that are simply aimed at replicating an Index with regards to its associated investments along with the return performance. The equity ETF helps in pooling money from investors, thereby investing it in equities of different companies. The sole aim of the ETF is to produce returns that are following the index. For instance, a Nifty ETF focuses on giving similar returns as the Nifty 50 and the Sensex ETF tries to generate returns that are similar to the Sensex 30. The underlying strategy is to club all the stocks of a particular index in the same gravity as in their indexes which is practised by even the top 10 stock brokers in India. Here Should an Individual Invest in Mutual Funds or ETFs? While comparing ETFs to mutual funds an individual is essentially looking for the answer that whether active management of funds can beat indices in the long run or not. If you look at the market hypothesis then actively managed funds cannot move past returns from ETFs or index investing. ETFs are extremely popular in developed countries as they’ve periodically outperformed mutual funds. However, when talking about the emerging economies then given their high growth potential, mutual funds fetch better returns than ETFs. The biggest problem with ETFs in developing countries is that while listing good companies in mid and small-cap space the high growth potential involved isn’t given much attention. However, when talking about risks, ETFs are a better option as they invest in better companies from verified domains.