Question 1

What is the difference between ETF and Mutual Fund?

Accepted Answer

ETFs (Exchange-Traded Funds) and mutual funds both create a pool of money from several investors to
buy a diversified portfolio of assets. ETFs are traded on stock exchanges like individual stocks,
offering real-time pricing and higher liquidity. Mutual funds, though, can be bought or sold only at
the net asset value (NAV). This NAV is determined at the close of each trading day. Additionally,
ETFs generally have lower expense ratios compared to mutual funds due to their passive management
style.

Question 2

What are the tax implications on an ETF?

Accepted Answer

ETFs are subject to capital gains tax when you sell your holdings. In India, selling equity ETFs in
less than 12 months of owning them incurs short-term capital gains (STCG), which is taxed at 15%. If
you hold them for more than 12 months before selling them, then long-term capital gains (LTCG) is
applied. This is taxed at 10% on gains exceeding ₹1 Lakh in the financial year. For debt ETFs
purchased on or after 01 April, 2023, the capital gains are added to your income and taxed as per
your income tax slab.

Question 3

Is investing in an ETF good?

Accepted Answer

Investing in ETFs can be a good option for many investors due to their low cost, diversification,
and liquidity. ETFs offer exposure to a broad range of assets and are ideal for passive investors
looking to track a specific index or sector. They provide a simple and efficient way to diversify
your portfolio. However, it is important to research and choose ETFs that align with your investment
goals and risk tolerance.

Question 4

When to buy an ETF?

Accepted Answer

The best time to buy ETFs depends on your investment strategy and market conditions. Since ETFs are
traded like stocks, you can buy them at any time during market hours. Many investors prefer to buy
ETFs when the market is down to take advantage of lower prices. It's also wise to avoid buying ETFs
during periods of high volatility unless you are an experienced trader. Regular investing through
systematic investment plans (SIPs) can help mitigate the impact of market fluctuations.

Question 5

Do ETF pay dividends?

Accepted Answer

Yes, many ETFs pay dividends if the underlying assets in the fund generate income, such as stocks or
bonds that pay dividends or interest. These dividends can be paid out to investors in cash or
reinvested to buy more units of the ETF. The frequency and amount of dividend payments depend on the
specific ETF and its dividend policy, which can be found in the ETF’s prospectus.

Question 6

What are the requirements for an ETF?

Accepted Answer

To invest in ETFs, you need a Demat account and a trading account with a broker, like m.Stock, that
offers ETF trading services. It's important to have a clear investment strategy and understand the
ETF's structure, underlying assets, and expense ratios. Regular monitoring of your investment and
staying informed about market conditions are also essential to make informed decisions when
investing in ETFs.

Question 7

What is the minimum size for an ETF?

Accepted Answer

The minimum size for an ETF generally refers to the minimum investment amount, which is typically
the price of one unit of the ETF. This can vary widely depending on the ETF and its current market
price. Unlike mutual funds that often have a set minimum investment amount, ETFs allow investors to
buy as little as one share, making them accessible for small investors.

Question 8

What is a limit on an ETF?

Accepted Answer

A limit order on an ETF is an order to buy or sell the ETF at a specific price or better. It allows
you to set the maximum price you are willing to pay for a buy order or the minimum price you are
willing to accept for a sell order. Limit orders provide control over the price at which the trade
is executed but do not guarantee that the trade will be completed if the market price does not reach
your specified limit.

Differences	ETF	Mutual Fund
Investment	Passively managed; tracks an index, making them less risky and transparent.	Actively managed by fund managers who invest in securities based on their analysis
Trading	Can be traded through the day where the price changes from minute-to-minute as per the market	Can be bought at any time of the day, however, NAVs of mutual fund schemes are declared at the end of each trading day, based on which MFs are allotted
Liquidity	Higher	Lower
Expense ratio	Lower	Higher
Minimum investment	Investors can start small	Higher minimum investment
Tax efficiency	Higher	Lower

Differences	ETF	Index Fund
Trading	Traded on exchanges like stocks, throughout the day	Bought and sold at the end of the trading day at the net asset value (NAV)
Expense ratio	Lower expense ratios than index funds	Higher expense ratio
Minimum investment	Buy in increments of one share	Often requires a minimum investment amount
Flexibility	More flexible due to intraday trading	Less flexible since it only trades at the daily NAV
Demat account	Requires a demat account	Can be traded without a demat account
Investment style	SIPs not available	SIPs available

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