What is the difference between ETFs and mutual funds?
In the Indian markets, both Exchange-Traded Funds (ETFs) and Mutual Funds are investment vehicles that pool money from investors to invest in various assets like stocks, bonds, or commodities.
However, they have key differences in how they operate:
1.Trading Mechanism
ETFs: Traded on stock exchanges like shares. You can buy/sell them during market hours at real-time prices.
Mutual Funds: Bought/sold directly through the fund house at NAV (Net Asset Value), which is calculated at the end of the day.
2.Pricing
ETFs: Prices fluctuate throughout the day based on demand and supply.
Mutual Funds: Have a single price (NAV) determined at the end of the trading day.
3.Investment Mode
ETFs: Require a demat account and trading account for transactions.
Mutual Funds: Can be purchased directly from fund houses without a demat account.
4.Management Style
ETFs: Mostly passively managed, tracking an index like Nifty 50 or Sensex.
Mutual Funds: Can be actively managed, where fund managers try to outperform the market.
5.Taxation
ETFs: Same tax rules as equity if held for more than a year (10% LTCG tax above ₹1 lakh).
Mutual Funds: Taxation depends on whether it's equity or debt mutual funds.