Question

How does an investor choose between an ETF and an index mutual fund tracking the same underlying asset?

Answer 1

ETF are low cost and the tax efficient innvestment funds that are directly traded .ETF are similar to high cost mutual funds. These are traded through a fund manager.Index fund is a mutual fund or an ETF constructed to follow a specific industry or index . ln the stock market are often told that the easy way to start investing is to buy an index fund or ETF. The people often use index fund and ETF interchangably, because most ETF track an index and when the people refer to ETF,. They are generally referring to index-tracking ETF. Deciding which is better an ETF or index -tracking mutual fund will vary from person to person. ETF can be more tax efficient than index mutual funds. ETF have expense ratios less than or equal to comparable mutual fund .ETF have lower investment than index mutual fund.Index mutual funds trade once per day.ETF trade like stocks in that investors can buy and sell shares on the open market throughout the day.Index mutual fund allow share holders to invest their dividends automaticaly. ETF don't offers that service .Tax efficiency ,lower minimum invest,lower expense,grater liquidity and flexibilities are main advantages of ETF. Automatically invest dividends ,no commission etc are the advantages of Index mutual fund.

lf you invest in tax advantaged accounts you don't need to worry about capital gain taxes incurred by ETF or Index mutual fund when portfolio managers change their holdings .The tax advantages of ETF over Index mutual fund should not be the only factor you consider when deciding between the two type of funds .