Index Fund and ETF Performance: Finance Trading Times

Index Fund and ETF Performance

Nickp2 has sent me this data table for the performance of Index Funds.



As clearly visible in the table above, almost all the Index Funds are returning well below their benchmark indices (as low as 5%). This is the risk and problem with Index Funds as compared to ETF.

Andy had also left a similar question about his Index Fund investment, saying that his index fund returns are below the nifty index that his index fund is tracking.

Seems to me that there is a lot of confusion between Index Funds (IF) and Exchange Traded Funds (ETF).
Both are assumed to be the same, however, they are quite different in the way they are created and the way they work.

Ultimately, their performance is also different.

While introduing ETF's and IF's, I have already published an article to differentiate between the Index Funds and Exchange traded funds.
Here is the link to the previous article, comparing index funds and ETFs and the difference between the two, please read it for gettting a clear picture about how index funds are created and how exchange traded fund units are created. Ultimately, their perfomance is different and so are the charges that you pay for them.
The article also gives a table at the end, displaying the amount of money going into various investments. ETF's are growing really faster than Index Funds.

Therefore, go for ETF's as compared to Index Funds. The profit in index funds is eaten up by the fund management charges. Also the time difference in rebalancing the portfolio of Index Fund also makes is a laggard as compared to ETF's.

Hope this article clears all the doubts.

Thanks Nickp2 for the data! Table of Contents
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11 Comments: Post your Comments

nickp2 said...(on 17 December 2007 at 21:09 )  

Hi Shobit,

Thank you for posting the information on your blog.It was entirely my pleasure to send you the information.I have learnt a lot from your blog and will be learning in the future to.Looking forward to your further articles

Thanks
nickp2.

SR said...(on 17 December 2007 at 22:19 )  

Thanks for the inputs both here and in your previous article (linked to this one).

I still didn't get what an ETF actually is -- how is it different from one unit of an index-linked mutual fund? (I mean, HOW does the ETF track the index? Same as an IF, right? What am I missing here?)

Thanks in advance for clarifying.

SR said...(on 19 December 2007 at 03:30 )  

Knock, knock! Anybody home?

Investment n Trading Advisor said...(on 19 December 2007 at 04:14 )  

SR,

I have published multiple articles on ETF and Index Funds. I too have my limitations and I dont think I can make things any clear further.

As far as the performance of ETF is concerned, you may download the historical data of ETF's from stock exchange websites and verify why ETFs are the best instruments.

You are suggested to either read through my articles once again, or use google for more information.


Sorry!

Vishal Raina said...(on 19 December 2007 at 04:49 )  

A typical case of Indian-ism...

The more I get for free, the more I want to extract. Not a single website is available on the internet which is so clear in terms of explaining things and so down to earth approach, yet we people are still willing to extract every bit of flesh when someone is offering help.

Atleast 5 blogposts are there on this blog which explain the ETF working so clearly, yet there are such sarcastic reminders.

Please note that I am NOT against asking questions on this website, but I am more concerned about the way we ppl are asking questions and setting reminders. Just look at the "reminder" that has been posted - "Knock, knock! Anybody home?".

Are we taking Shobhit for granted, as if he is sitting without any work to provide free assistance to one and all?
Guys, lets be a bit more respectful in asking questions. Appreciate the efforts and be constructive, rather than being sarcastic.

Rshri said...(on 19 December 2007 at 11:06 )  

Recently a commenter wrote that as per his observations - "Indians have no respect for fellow Indians". SR's "Knock!Knock!" comment proves this to be true.

Shobhit, please dont let comments like this dampen your spirit! There are hundreds of people like me who are truly grateful and appreciative.

Anonymous said...(on 19 December 2007 at 20:13 )  

Just wondering - is SR the same person as Siddhartha Roy??? (James Bond style introduction with Halle Berry in swimsuit)? MBA? Warren Buffet style - invest in Businesses?

SR said...(on 19 December 2007 at 21:02 )  

Looks like I've put my knocker in my mouth! Okay, so my impatience wasn't very decorous (will a simple apology do, Shobhit?), but lay off already, O devotees and followers of Shobhit! (Now I know why India has people actually worshipping Tendulkar and the Big B in temples!)

Anyone want to address what I asked? How exactly DOES an ETF work, the mechanism?

Of course I can do my own research on this (and I will, if a reply is not forthcoming on this forum), but that applies to everything we talk about here, doesn't it? (After all, nothing really cutting-edge is discussed here!) I mean, that IS the whole point of this blog, isn't it? (Explain simple things in a simple way to simple folk?)

Shobhit, is this kind of comment unwelcome here? (I think it's fair game myself. Shobhit runs this blog, which means he chooses to use his time to help us and educate us, whatever his motivations.)

Nevertheless, it's your blog, Shobhit, and if you ask me to lay off, you won't see me around again, I assure you.

(Although in your place, I would any day prefer one single knowledgable reader, even if he is rather obdurate, to a hundred airheads who grovel at your feet! Still, as I said, it's your blog, so I defer to you on this.)

Anyway, I open myself to the risk of further brickbats from the Shobhitians to solicit:
(a) an answer to my question;
(b) Shobhit's opinion on whether my comments are welcome here, and whether I should stop coming here. (Shobhit's comments, not his devotees'.) and (hopefully)
(c) Silence from the devotees.

Vishal Raina said...(on 19 December 2007 at 22:32 )  

Dear Mr. SR,

"Explain simple things in a simple way to simple folk?" is definitely the motive of this blog - I as a reader of this blog can assure you that for sure.

But cant you put your questions/comments in a SIMPLE language? What are you trying to show-off with your high flying words like decorous, obdurate?? You are only showing Sarcasm and nothing more.

As someone has rightly pointed out in previous comment - you definitely are the same Siddhartha Roy, an MBA, isn't it?

Is this what your MBA course has taught you?

The debate started NOT because of your question, but because of your unwelcoming and sarcastic "reminder". There is a level of decency that is expected when you WANT something from the other person. What are you trying to imply by the way you have written your reminder? Some one sitting at your service to offer you 24*7 help that too free of cost?

Looking at the timestamp of the question and then of the reminder, dont you have the patience of waiting even for 24 hours?

As far as your visiting or not visiting this blog is concerned, I dont think it will have any effect on this great blog of Shobhit.
More than 1000 visitors per day on this blog is not achieved just by typing anything - it comes when it helps people and is useful to them. To make a thing useful, even the reader is expected to have some level of understanding and knowledge. If I as a mere Bachelore graduate can understand things, then definitely you as an MBA are expected to understand better.

Yes, I am proud to be a follower of this blog and the author. Better to appreciate someone's effort and seek help from him in a way that is appreciative and supportive, rather than showing sarcasm. Who cares whether you visit this blog or go away from here.
The quality of this blog is such that you (and anyone) will have to comeback. I have been reading your comments previously also. You initially started posting anonymously, then posted your name when shobhit requested, then when some called Vijay had a discussion with you, you started posting with a name SR. Going forward, you will continue to visit this blog, and keep posting questions in proxy names and shortforms. Keep it up! - that is what your level of education is, and that's what your background has taught you!

Investment n Trading Advisor said...(on 20 December 2007 at 03:55 )  

Hi SR,
Sorry for not being able to help you on this topic.

Investment n Trading Advisor said...(on 20 December 2007 at 03:59 )  

People,

Kindly stop this unwanted discussion on such petty things. Everyone has an opinion and way of expression. Everyone is correct (or incorrect) sometime or the other.

Please avoid personal attacks.

Thanks,

Wish you all happy and fruitful trading and investing activities with safety! = = = Post a Comment

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