What's the difference between Index Funds and ETFs
This question is raised frequently by investors and it's easy to understand why – the two investment solutions can be similar in some ways.
Index Funds are mutual funds that typically track a specific market index such as the S&P/TSX Composite Index. Broad-market ETFs also do the same. For both investments, the Portfolio Managers attempt to create a portfolio of securities that replicate the composition and performance of a given index (i.e. passive management).
Where the two differ is in the costs, and how they are bought and sold. As Index Funds are mutual funds, they can have higher fees than ETFs. And while mutual funds are purchased and sold through the issuing investment management company, ETFs are traded on stock exchanges.
Buying and selling ETFs can involve brokerage transaction fees, while purchases and redemptions of Index Funds are less likely to incur fees.