What is the difference between an Exchange Traded Fund (ETF) and an indexed fund?
A ETF is a fund that is managed to follow an index. The fund can be traded through the exchange. You can buy and sell the fund at any time during the trading day. The price is based on willing buyer, willing seller. It should follow quite closely to the value of the underlying assets.
An indexed fund is NOT traded through the exchange. If you wish to buy or sell units of the fund, you have to accept the price that is fixed by the manager at the end of the trading day. It will be based on the value of the underlying assets (based on the closing price).
Most of the investment-lined funds (ILPs) and unit trusts are NOT traded on the exchange.
For long term investors, it is better to invest in a non-traded fund. If you want to do short term or intra-day trading, a ETF is more suitable.
"For long term investors, it is better to invest in a non-traded fund. If you want to do short term or intra-day trading, a ETF is more suitable"; Q: Why is that so ?
ReplyDeleteWith a ETF, you can trade at any time during the day, and get the price that you are willing to pay.
ReplyDeleteWith a fund, you have to take the price calculated at the end of the day (and the price may change during the rest of the current day).