ETFs (Exchange Traded Funds) & Mutual Funds are investment avenues that are managed by a Fund manager and allow Retail investors to invest in them. ETFs are listed on Stock Exchanges, and Mutual Funds are not. Usually, ETFs track an Index or sector whereas Mutual Funds offer a much more variety of Funds from which an investor can choose from. Both of these investment vehicles have their own merits and demerits. One should evaluate their risk profile and goals and choose one of them either. Find out which of these is the better option.
ETFs and Mutual Funds are both investment tools that collect money from the investors and invest it accordingly. There are some differences between ETFs and Mutual Funds, let's look at them in detail.
Mutual Funds are funds that collect money from the investors and use that money to buy securities from the market. This is done on behalf of the investors and whatever Gain or loss is incurred in the process, the fund house passes it on to its investors. While doing so a Mutual Fund charges a nominal fee for its services in the form of an Expense Ratio which is charged by the customers of that Fund.
ETF (Exchange-Traded Fund)
ETFs are also similar to Mutual Funds to some extent but not completely. ETFs usually track an index or a particular sector where not much rebalancing or buying & selling is required. ETFs that track an Index pass on the same return as the Index at a minimum Expense Ratio. The expense ratio on ETFs is lower compared to Mutual Funds as ETFs are mostly passive funds where to overhead costs are less.
Both investment vehicles have their own pros and cons. An individual should identify their requirements and Risk profile before investing in either of them. This question could be answered in 2 different perspectives of investment.
Considering the above points one can easily find out which type of Fund suits their requirements. One should also assess their Risk profile before choosing the type of ETFs or Mutual Funds. To make an ideal portfolio one should ensure that there is proper diversification. There should be a mixture of Debt and Equity in every portfolio so that, one is protected by the market downside with their Debt allocation.
Its very hard to deliver the performance of ETFs like NIFTY or SENSEX with active fund management, net of fees Mutual funds will give almost similar return as of ETF.
Rightly said, not many mutual funds have given returns better than ETFs
I think it is better to stick to mutual funds instead of ETFs. Price deviation between ETFs and its real price can be huge at any time and this means that you will get poor price discovery.