What is the difference between Index Funds and ETFs?

Answer 1

Index funds track a broad market index, like the Dow Industrials, the S&P 500, The Russell Midcap index, The S&P small cap index. These funds don't try to beat the market, they just try to participate in the entire market segment without too much expense. An ETF [exchange traded fund] can be as narrow or broad in scope as the fund manager wishes. That manager is trying to outperform a benchmark by trading. For example, the Japan Fund (ticker EWJ) invests in companies that the fund manager thinks will outperform the Japaneese market as a whole. The S&P 500 fund will just try to track the performance of the S&P index.

Answer 2

ETFs and index funds are alike in that both select stocks according to a set index or rule. For example: all the stocks in the S&P 500. Some of the indexes are more obscure, such as Pallisades Water Index which is used by Powershares Water Resources ETF, PHO. Generally, if the stocks in an ETF are NOT selected by a index, but rather at the discretion of the fund manager, it's called a "closed-end fund" rather than an ETF.

The difference between an ETF and an index fund is that ETF shares are traded on the stock exchange. Shares of mutual funds are not traded on the stock exchange. You must have a brokerage account to purchase ETF shares, like the online Scottrade or Ameritrade. Mutual fund shares can be purchased directly from the fund company as well as through a brokerage account. For both ETFs and mutual funds, the share price reflects the price of the individual stocks it holds.

Advantages of ETFs: the expense ratio is usually slightly smaller than the equivalent mutual fund. Also, ETFs are available that target very specific market sectors, such as water resources ETF mentioned above. ETFs are also more tax efficient, since they do not generally distribute as much income in the form of dividends and capital gains, but there is some debate as to the actual tax efficiency of ETFs. It may depend upon the particular ETF you choose.

Disadvantages: Every time you purchase or sell shares of an ETF you pay broker fees. If you purchase mutual fund shares directly from the mutual fund company, there are usually no fees for buying or selling.

Answer 3

Liquidity.

The funds can only be traded on an end-of-day basis, and you can't really control the exit price. The fund in question also has to be offered at your brokerage firm, or bought from the fund company directly. Plus, you may have a holding period requirement...usually 6 months.

The ETFs can be bought and sold at any point in the day (via an exchange), and you can pick your price, assuming it's a fairly marketable price you're seeking. You can buy and sell them no matter who your broker is.You'll pay a commission, although it's possible you'd pay a similar fee/commission for a fund.

That said, don't necessarily assume an ETF is better than a fund. Both have unique advantages over the other.

Answer 4

Index funds are generally priced at the end of the day, around 4PM Eastern, while ETFs have intra-day pricing. Some of the index ETFs have lower expense ratios, but you still have to consider the brokerage costs of the ETF, if it's significant.

The Wiki talks about capital gains distribution, but I'm not sure how much that would apply with an index fund that is relatively static. ETFs don't have forced redemptions at all.

All that aside, the returns are going to be almost the same, so pick the one that's more convenient for you.

Answer 5

ETFs are extra liquid, commerce intraday and performance extra liquidity consequently. Mutual money are the perfect purchase and carry, yet with a lot less liquidity (traded end of day in uncomplicated phrases) so it really is extra sturdy to bypass out if the market is disrupted in a risky way for the time of paying for and promoting hours. both will be compared for performance adverse to friends, besides the undeniable fact that the Mutual money' returns are extra depending on the fund manager. The ETF money are extra depending for sale/Sector/agencies lined

Answer 6

Index funds means nse and bse index stocks (like ril,tisco,infosy...,) .which funds contains this index stocks that fund is called index fund.

Answer 7

One relates to securities and the other to payment transfers.

Answer 8

look up on Yahoo, or google. It's illegal for a broker to say on TV.