InvestorQ : Which is better passive investment, an index fund or ETF?
Nikita Damle made post

Which is better passive investment, an index fund or ETF?

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natasha Samani answered.
12 months ago
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Better is based entirely on your own personal investor profile - your available trade cash, investment strategy, how active an investor you are, how often you buy and sell, and average size per order. Most ETFs are index funds, aiming to deliver the performance of a stock, bond, or commodity index, minus fees—no more, no less.

These funds don’t have managers who are paid to “deliver alpha” or market-beating returns. Instead, ETF portfolio managers are quantitative disciplinarians with a laser-like focus on hugging the index. The cost of an ETF covers licensing the index from a data publisher, paying administrative fees (lawyers, trusts, exchanges), and compensating the managers, who tend to work on multiple ETFs at once. All of this is bundled together into what is known as the expense ratio.

Within the mutual fund universe, index funds are one of the best -- though under-used -- products. These funds typically follow the index (either the Sensex or Nifty), by investing in the stocks constituting these indexes in the same proportion, and since they are not actively managed (these are passively managed funds), the cost structure is lower.

Index mutual funds offer investors a low-cost alternative to actively managing their own portfolio, with minimal activity and portfolio churn. Through this method, one can enjoy diversification of one’s investment portfolio, the portfolio risk is reduced, and one can get either a steady flow of income or capital appreciation in the short or long term (depending on one's investment horizon and goals) through a diversified portfolio at a low cost and low risk. 

In case you would prefer the convenience of being able to buy and sell on a real-time basis, in that scenario ETFs would have an edge over index funds. You can only buy /sell an index at the NAV at close from an index fund. With ETFs’ you can trade throughout market hours.
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