Comparison between Exchange Traded funds (ETF) and Mutual funds
6 March 2018
| Details | ETF(Exchange Traded Fund) | MF(Mutual Fund) |
| Exit Load | ETFs do not charge exit load. Instead, investors pay broker commissions when they buy and sell share units of ETF. | MF charge Exit load.If redeemed before certain period the exit load is 1% before 1 year |
| Valuations | ETFs trade throughout the trading day, like stocks | mutual funds, trade only at the end of the day at the net asset value (NAV) price. |
| Basic Requirements | You need to have Brokerage Account(DMAT)Account for ETF sell or Buy | Offline or online option |
| Regular Management Charges | Investment management fees for exchange-traded funds (ETFs) are deducted by the ETF company, and adjustments are made to the net asset value (NAV) of the fund on a daily basis. These management fees are never directly seen on any investor statements and are handled in-house by the fund company. Exp for ETF can vary from 0.1% to 1.5% | A Mutual Fund’s Operational expense fees is knnown as the expence ratio.Exp Ratio in MF is predefined and communicated to Customers as follow: Upto 2.50% |
| Details of Fees charged are: | Details of Fee charged are: | |
| 1: Trustee fee | 1: Trustee fee | |
| 2: Audit fees | 2: Audit fees | |
| 3: Custodian fees | 3: Custodian fees | |
| 4: RTA Fees | 4: RTA Fees | |
| 5: Marketing & Selling expense incl. agent commission | 5: Marketing & Selling expense incl. agent commission | |
| 6: Cost related to investor communications | 6: Cost related to investor communications | |
| 7: Cost of fund transfer from location to location | 7: Cost of fund transfer from location to location | |
| 8: Cost of providing account statements and dividend redemption cheques and warrants | 8: Cost of providing account statements and dividend redemption cheques and warrants | |
| 9: Costs of statutory Advertisements | 9: Costs of statutory Advertisements | |
| 10: Cost towards investor education & awareness (at least 2 bps) | 10: Cost towards investor education & awareness (at least 2 bps) | |
| 11: Brokerage & transaction cost over and above 12 bps and 5 bps for cash market transactions and derivative transaction respectively | 11: Brokerage & transaction cost over and above 12 bps and 5 bps for cash market transactions and derivative transaction respectively | |
| 12: Service tax on expenses other than investment and advisory fees | 12: Service tax on expenses other than investment and advisory fees | |
| 13: Investment Management & Advisory Fee | 13: Investment Management & Advisory Fee | |
| 14: Service tax on brokerage and transaction cost | 14: Service tax on brokerage and transaction cost | |
| 15: Other Expenses | 15: Other Expenses | |
| Cost | Annually 0.1% to 1.5% | Annually 1.0% to 2.5% |
| Fund Management Strategy | There is not active investment management by Skilled fund manager as ETF replicates specific Benchmark and invest passively based on Benchmark | There is active investment management by Skilled fund manager as a motive of MF is to outperform the market and invest actively based on In-house research and find objective |
| Suitability | Suitable or short run investments so will be able to save exit loads and will have good return trade-off | Those who wish to remain invested for the long run |
| Performance Snap | Reliance ETF Nifty BeES – Performance Snapshot as on Mar 05, 2018 | |
| Period | Absolute Returns (%) | |
| Here We are taking Large cap ETF ad Large Cap MF from the same AMC we can see the returns difference in MF and ETF get created due to active management… | ||
| 1 week | -2.1 | |
| 1 month | -2.7 | |
| 3 months | 2.6 | |
| 6 months | 4.5 | |
| 1 year | 17.9 | |
| 2 years | 41.4 | |
| 3 years | 19.4 | |
| 5 years | 82.5 | |
| Mirae Asset India Opportunities Fund – Direct Plan (G) – Performance Snapshot as on Mar 05, 2018 | ||
| Period | Absolute Returns (%) | |
| 1 month | -2.8 | |
| 3 months | 0.2 | |
| 6 months | 3.5 | |
| 1 year | 21.3 | |
| 2 years | 57 | |
| 3 years | 40.2 | |
| 5 years | 168.5 | |
| Conclusion | An investor who is looking for Active investment management and better returns in the long run Mutual fund is most suitable as the historical returns are better after all Management changes and Exp ratios are deducted. One condition is that before making MF investment be assured that you are selecting a good fund based on expert advice and that your advisor monitors the same for you.ETFs are suitable in a market condition where no one can outperform so one can save expense charges from AMC and in short run load and fees. | |
| Geeta Choudhary | ||
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Para Planner – Dilzer Consultants Pvt Ltd |
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