Exchange Traded Funds (ETFs) and Index Funds are both types of index trackers, so it’s worth understanding all about them to establish which tracker type is likely to be better for you.
ETFs Vs Index Funds: The Ultimate Battle Of The Trackers
Published by a great website called Monevator is a superb article entitled ETFs Vs Index Funds: The Ultimate Battle Of The Trackers. It’s well worth a read. To whet your appetite, here’s the opening 222 words.
ETFs and index funds help passive investors keep their investing decisions simple. Whereas complex financial products spawn amazement, desire and disappointment in roughly that order, ETFs and index funds can deliver more important things, like diversified, low-cost portfolios on limited resources.
Collectively known as index trackers, ETFs and index funds are each readymade packages of securities that deliver the return of a particular market (e.g. US equity) by tracking that market’s index.
But not all index trackers are created equal.
Despite sharing plenty of DNA, it’s worth knowing the differences between ETFs and index funds – just as you’d prepare differently for a tea party of chimpanzees versus a visit from Aunty Hilda, even though they’re 99% genetically alike.
Structure: Index fund
Most index funds are set-up as Open-Ended Investment Companies (OEICs) while some are Unit Trusts. The US equivalent is the mutual fund.
OEICs and Unit Trusts are closely related. They are called ‘open-ended’ vehicles because the supply of shares in the fund is not restricted.
The fund manager can create new shares to meet demand from buyers and cancel shares to meet obligations to sellers.
The big difference between an ETF and an index fund is that ETF shares trade on the stock exchange, just like ordinary shares. In the UK, ETFs are listed on the London Stock Exchange (LSE).
To discover who wins the battle between ETFs and Index Funds, visit Monevator.
Brush Up Your Knowledge With Smarter Investing
Read Monevator's Review of Tim’s book:
"Whenever I’m asked to recommend an investment book, I usually reply, “Smarter Investing by Tim Hale.”
For years it stood alone as the only guide to passive investing that catered for UK investors. While US readers could revel in the works of Bogle, Bernstein, Swedroe et al, only Tim Hale waved the flag for Britain.
And the truth is that, in many ways, his book is better than any of their mighty efforts."
Discover Why Index Funds Are So Popular
In case you missed it, here's our recent article on Index Funds.
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