Index funds or Index ETF / ETS

While passive investing is yet to pick up in India, almost all Mutual funds offer a choice of Index funds which try to track returns generated by Nifty / Sensex. But when one does go the passive way, should one invest in Index funds or with Exchange Traded Funds is the key question.

The answer as the following graphic shows is a no brainer

Chart

Unlike actively managed mutual funds where stock picking ability is the key differentiator of returns, in the world of passive, it comes down to one and one thing only. How much is the fund house charging to provide you Index returns. The lower the charges, higher is your return (and closer to what Nifty TRI shall deliver).

Above list contains only funds with track record of 5 years and hence misses out on funds such as SBI ETF Nifty 50 which has a amazingly low Expense Ratio of 0.07%.

Further Reading: David and Goliath: Who Wins the Quantitative Battle?

Fund Fees and Future Returns – Morningstar

 

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3 Responses

  1. Gowtham says:

    Sir i dont understand why the returns differ from 8.7% to 10.1% in 3 yr returns..they r passively maintained but still returns differs..So can we buy any ETFs or passive mutual funds by just seeing only the lowest expense ratio..my doubt is these expense ratio differs every year, then how to find a best passive mutual fund or ETF

  2. Vikas Pandey says:

    why the data is not matching with valueresearch today’s value , today it shows 10 yr return as 11.31% , is it that there is performance increase between the day u wrote and today or there is something else

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