What is difference - Mutual Funds vs Index funds?

  • Asked By
  • Updated On:
    28-Jan-2021
  • Replies:
    1

Short Answer

The differences between index funds and mutual funds are vast. Learn what is mutual fund and index fund and know what differentiates the two investment options.

Detailed Answer

Index funds or Index mutual funds are essentially mutual funds in which investments are made in stocks which track a particular index in the stock market.

An index like Nifty 50 or BSE 100. So in a way, they replicate underlying Index.

Differences Between Mutual Funds and Index Funds:

  1. Index funds can generally come in two forms Index mutual funds or ETFs.
  1. Index mutual funds are simply mutual fund schemes whose mandate is to invest in underlying index stocks. So, in a way it is a passive investment in underlying index.
  1. Similar to Mutual funds, Index mutual funds have a daily NAV and can be brought or sold to the Fund house.
  1. Mutual funds, on the other hand, depending on it stated scheme goals have greater flexibility in changing their portfolio. Hence, these are actively managed funds.
  1. ETF ( Index funds) track one of the stock indices and are actively traded on the exchange. The price of ETFs hence varies dynamically. ETFs can be bought and sold on the exchange.

Mutual funds vs Index Funds: Conclusion

  1. Actively managed equity portfolios tend to outperform passive index funds.
  1. Outperformance can vary over time period and decreases with large time intervals.

So, for now it may be worth paying higher expense ratio for actively managed mutual funds. Since, actively managed mutual funds end up giving better returns.

Tagged With: mutual fundsindex fundsmutual funds vs index fundsmutual fund vs index fund
Categories: Mutual Funds
Ask Your Query for FREE, Get quick answers from our FINTRAKK community!
Discussion (0)
Related FAQs
What is difference between Fixed Deposit vs Mutual Fund? Meaning

Fixed Deposit (FD) are saving tools offered by banks to deposit lump sum amount for a fixed period of time on a higher interest rate than saving accounts. Mutual funds are investment products which pool money from numerous small investors to create a fund.

Which is best 5paisa vs Zerodha stock broker?

You might have read about different stock brokers in India. Here I'll review two of the most popular discount brokers in India: 5Paisa v/s Zerodha Comparison.

How to Invest in Index Funds in India?

There are several options to invest in index funds. It can be done through online portals, agents, demat account and AMC website.

Is it better to buy ETFs or Mutual Funds?

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.

How does an ETF work?

ETF is an investment instrument that tracks a group of securities from a particular asset class and performs according to it. It is managed by a Fund manager who makes sure that the ETF tracks the underlying asset accurately. ETFs are listed on the Stock Exchanges therefore one can buy & sell them within the market hours at their desired prices.

How are ETFs different from Mutual Funds?

ETFs (Exchange Traded Funds) and Mutual Funds are similar investment vehicles that provide the investors various features. Both have their benefits and shortcomings. ETFs are a good option for passive investors who want to invest in a particular Index or Sector without much rebalancing. On the other hand, Mutual Funds are a better option for active investors who are more active with their investments. One can switch between funds according to their current strategies.

What are the best mutual funds to generate income?

Mutual funds are professionally managed investment vehicles that offer numerous categories of funds to investors. To generate regular cash flows or income, investors can use the Systematic Withdrawal Plan or invest in Dividend Payout and Debt funds to receive regular income. Debt funds provide regular interest payouts, whereas dividend payout funds give regular dividends which act as regular income.

How to get exposure in U.S stocks?

Investing in abroad markets has become quite easy these days. One can get direct and indirect exposure into the U.S. market through various methods. Investing in foreign markets like the U.S provides many benefits like Diversification into the top companies of the world, Benefit of Currency Depreciation, etc. Apart from directly purchasing the stocks listed on the U.S. stock exchanges, there are some different methods as well. Know the best methods of getting exposure to the U.S. stock markets.

What are Index Funds? Meaning, Advantages, Review, Taxation

Index funds are mutual funds in which investment are made in the stocks of Index they track such as Nifty, Sensex according to its composition and weightage of the index.

Which is better investing in equity, mutual funds, or keeping money in banks?

Equity and mutual funds are perfect if you want to invest in companies while seeing your money grow in a short period. Moreover, the chances of compounding your investments are higher. But the risk associated is equally greater considering the growth of companies and their performance in offering returns. But then keeping money in the bank is the safest way to keep your earnings. But then, due to inflation and low returns on interest, that value of the money kept might be cut down drastically.