Index Funds

Index fund or ETFs? Compare total cost

Harsh’s article in Business Standard on how a fixation on expense ratio has led to a preference for exchange traded funds over comparable index funds among some investors. In the case of ETFs the NAV is only of guidance value and the market price paid by investors buying the ETF is higher than the NAV and the investors selling the ETF is lower than the NAV. The difference between market price and the NAV imposes an additional cost. Besides, there is brokerage fee, which amplifies an ETF´s tracking error
Hence the tracking error based on market price is way higher than the tracking error of comparable index funds. The incipient movement towards Fund of Index funds across asset categories has been the inadvertent victim of the hastily introduced tax amendment targeting debt funds in the last budget. Hopefully we should see this corrected in the next full budget and index based FoFs will play a pivotal part in passive investing in the future.

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Wealth creation is simple but not easy, requires discipline

“Sleep well, eat healthy and exercise regularly” are the “simple” rules that enable a healthy life. However it is not “easy” to follow these simple rules. Similarly wealth creation has simple rules which require discipline and patience. Most people prefer complex solutions in their search for faster results and it takes a dedicated coach to keep them on the path (pardon this bit of self promotion for our profession). Harsh’s article in Business Standard. Your comments welcome as always..

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