Expense ratio of direct plans 60 bps lower than regular schemes

May 20 2014, 06:41 IST
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SummaryHow does indexation work in debt mutual funds? How is it calculated?

the units now?

— Sukumar Rao

ELSS schemes have a lock-in of three years and you can redeem the units of the scheme now.

How cost-effective are index funds? Are they the easiest way to track

a fund?

— Yatish Bhandari

There are two ways in which an investor can track the index efficiently — one, by investing through an index fund and, two, by investing through an exchange-traded fund (ETF). In terms of expenses, index funds or ETFs have average expenses of around 1% or lower. This compares to 2-2.5% expenses typically charged by an actively managed fund.

Buying ETFs, however, requires you to have a brokerage account and you need to pay brokerage while buying and selling the units. The advantage in ETFs is that the price of the ETF varies intraday based on the price movement of the index while you can buy or sell mutual fund units only at the end of the day price.

Niranjan Risbood

The writer is director, Fund Research, Morningstar India

Send your queries at fepersonalfinance@expressindia.com

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