Index Funds or ETFs?

[RajaNarthaki]

Naa Major investments anni Index funds lo unnai on Fidelity. Recent ga ETFs gurinchi chadivanu. Are they better in long term returns and tax wise? Kid education kosam save cheddam ani thinking. I know 529s are there there seem to have some drawacks. and India move aina kuda ee funds for education accessible ga undalante em cheyali..? pls share ur thoughts?

[HugoStrange]

same to same. Index fund u can only sell once a day, ETF can be sold like stock. 

[Guest]

First of all, think about tax issues if you're moving to India with income generated & capital gains to be paid in the US. 

ETFs are more tax-efficient than index funds by nature, thanks to the way they’re structured. When you sell an ETF, you’re typically selling it to another investor who’s buying it, and the cash is coming directly from them. Capital gains taxes on that sale are yours and yours alone to pay.

To get cash out of an index fund, you technically must redeem it from the fund manager, who will then have to sell securities to generate the cash to pay to you. When this sale is for a gain, the net gains are passed on to every investor with shares in the fund, meaning you could owe capital gains taxes without ever selling a single share.

This happens less frequently with index funds than with actively managed mutual funds (where buying and selling occur more regularly), but from a tax perspective, ETFs generally have the upper hand over index funds.

2. ETFs will have a lower minimum investment than index funds. Most of the time, all it takes to invest in an ETF is the amount needed to buy a single share, and some brokers even offer fractional shares.

But for index funds, brokers often put minimums in place that might be quite a bit higher than a typical share price. If you have only a small amount to invest, consider an ETF with a share price you can afford or an index fund that has no minimum investment amount.

[Guest]

To decide between ETFs and index funds specifically, compare each fund’s expense ratio, first and foremost, since that’s an ongoing cost you’ll pay the entire time you hold the investment. It’s also wise to check out the commissions you’ll pay to buy or sell the investment, though those fees are usually less important unless you’re buying and selling often.

[former]

38 minutes ago, rushmore said:

First of all, think about tax issues if you're moving to India with income generated & capital gains to be paid in the US. 

ETFs are more tax-efficient than index funds by nature, thanks to the way they’re structured. When you sell an ETF, you’re typically selling it to another investor who’s buying it, and the cash is coming directly from them. Capital gains taxes on that sale are yours and yours alone to pay.

To get cash out of an index fund, you technically must redeem it from the fund manager, who will then have to sell securities to generate the cash to pay to you. When this sale is for a gain, the net gains are passed on to every investor with shares in the fund, meaning you could owe capital gains taxes without ever selling a single share.

This happens less frequently with index funds than with actively managed mutual funds (where buying and selling occur more regularly), but from a tax perspective, ETFs generally have the upper hand over index funds.

2. ETFs will have a lower minimum investment than index funds. Most of the time, all it takes to invest in an ETF is the amount needed to buy a single share, and some brokers even offer fractional shares.

But for index funds, brokers often put minimums in place that might be quite a bit higher than a typical share price. If you have only a small amount to invest, consider an ETF with a share price you can afford or an index fund that has no minimum investment amount.

Good info. I don't own any funds apart from the 401K.

New to investing. 

[JackSeal]

1 hour ago, RajaNarthaki said:

Naa Major investments anni Index funds lo unnai on Fidelity. Recent ga ETFs gurinchi chadivanu. Are they better in long term returns and tax wise? Kid education kosam save cheddam ani thinking. I know 529s are there there seem to have some drawacks. and India move aina kuda ee funds for education accessible ga undalante em cheyali..? pls share ur thoughts?

Dont invest in 529 unless you get some tax benefits. Rather invest same amount in S&P500 or VTI. You have more flexibility. My 2cents.

[Pandubabu]

1 hour ago, rushmore said:

First of all, think about tax issues if you're moving to India with income generated & capital gains to be paid in the US. 

ETFs are more tax-efficient than index funds by nature, thanks to the way they’re structured. When you sell an ETF, you’re typically selling it to another investor who’s buying it, and the cash is coming directly from them. Capital gains taxes on that sale are yours and yours alone to pay.

To get cash out of an index fund, you technically must redeem it from the fund manager, who will then have to sell securities to generate the cash to pay to you. When this sale is for a gain, the net gains are passed on to every investor with shares in the fund, meaning you could owe capital gains taxes without ever selling a single share.

This happens less frequently with index funds than with actively managed mutual funds (where buying and selling occur more regularly), but from a tax perspective, ETFs generally have the upper hand over index funds.

2. ETFs will have a lower minimum investment than index funds. Most of the time, all it takes to invest in an ETF is the amount needed to buy a single share, and some brokers even offer fractional shares.

But for index funds, brokers often put minimums in place that might be quite a bit higher than a typical share price. If you have only a small amount to invest, consider an ETF with a share price you can afford or an index fund that has no minimum investment amount.

You are confusing index with mutual funds.