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Why ETFs Are Better Than Sector-Specific Or Index-Linked Mutual funds?

by BankingTricks Desk

Like Mutual Funds, ETFs or Exchange Traded Funds are also an investment option that can be chosen to invest in a basket of stocks or indices. But still, they differ from mutual funds in many respects and have several advantages. You can buy and sell these through Demat accounts at any time during market hours.  Mutual funds are actively managed by fund managers. But ETFs run passively with funds that mimic the index. If you have knowledge of the market and you are sure to invest in any particular sector or index-linked fund, then you should choose ETFs over MFs. Here we will tell you the advantages of ETFs over mutual funds.

Cheaper than MF:

 An investor who buys or invests in ETFs does not have to pay any advisory or management fees to mutual fund managers. Mutual funds can have a high total expense ratio of up to 2 per cent.  In the case of ETFs, the charges range from 0.05-1% of the NAV.

Holding cost is very low:

Commodity ETFs are one of popularly traded ETFs. There is no physical transfer of the commodity, so there is a low holding cost. You can also apply for at least one of these units.

Real-time investment:

Also read: What Are IPOs? What You Should Take Care Before Investing Into One?

Unlike, mutual funds where units are allotted 2-5 days later, investment in ETFs is available through the Demat account during market hours at the near real-time price as against the end of the day price.

Faster settlement:

 Mutual funds trade at the NAV calculated at the end of the trading day. ETFs trade at their current market price.

Direct investment:

Investing in mutual funds cannot be done directly. It involves an intermediary, form filling etc. But direct investments can be made in ETFs directly from the open market.

Lock-in period:

Mutual funds come with and without a lock-in period. If locked in, investors cannot withdraw their holdings during that time. If the withdrawal is done during the lock-in period Investors have to pay a certain amount or exit load. However, there is no such lock-in period limitation in ETFs.

Read more: What Is A Contra Fund? Should You Invest In It?

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