I read about index funds and ETFs and feel that ETFs are cost-efficient compared to index funds. Should I still invest in an index fund?
Saurav Guha, Noida
Your observation is not completely correct and the logic is a bit skewed, favouring Exchange-traded funds (ETFs). Yes, ETFs cost less compared to index funds, because they are structured in such a manner. But, you are forgetting to factor the need for a demat account when investing in an ETF and the costs associated to maintain a demat account. Moreover, ETFs have not been as popular in India compared to regular mutual funds. The first ETF was launched in mid-2002; index funds, by comparison, have been around since 1997. Over the years, both ETFs and index funds have matured, but the propensity for actively managed funds to fare better has only meant that investors have a tilt towards actively managed funds over passive funds. You should be selecting a fund to invest based on your financial goals and needs and not be influenced only by expense ratio of funds.
