Is there any fundamental difference between an ETF(exchange-traded fund) and an Index Fund?

Question

Is there any fundamental difference between an ETF(exchange-traded fund) and an Index Fund?

Answer 1

No fundamental difference ... true.  However, there are other less apparent differences that would make an investor choose one over the other.

ETFs are traded like stocks giving you a choice of buy or sell prices ... you can place a stop loss, or a limit buy order on an ETF, but not on a mutual fund.

Typically, mutual funds are cheaper to own as the mgmt fees are usually less.  They are more of a "set it and forget it" investment, which is nice if your life is complicated.

The true beauty of ETFs is that they concentrate so well ... I want to short Japan this week ... there is an ETF for that.  I want to short energy this week ... there is an ETF for that.  I want to ride Gold this week ... The list goes on and on.

Check out Morningstar.com for more info about ETFs VS Index funds ... also check out money-and-investing.com for general info.

I wish you the best!

Uppity Wench

Answer 2

YES. An ETF may not track an index, it could be gold ETF which tracks physical gold. An ETF is securitised, That is the underlying instrument, be it an index, metal, future whatever is turned into a share and traded on the stock exchange. Thus it could be ISA'd. See http://www.shareworld.co.uk

Answer 3

The two are not related except that a mutual fund can be both, and most ETFs are index funds.

An ETF is a mutual fund whose shares are bought and sold just like normal stocks. The advantage of an ETF is that buying and selling is more convenient.

An index fund is a mutual fund whose holdings (which shares it owns) are determined by an index. An S&P 500 index fund holds the shares in the S&P 500 index. These funds tend to have very low costs because there is virtually no management.

As I wrote above, most ETFs are index funds, but there are some that are not.