Hi,
It’s not just about cost, but also three other components:
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Liquidity
Tracking error
Dividends (reinvestment, distribution or swaha)
The below table summarizes these three points.
| Basis | Mutual Fund | ETF |
| Liquidity | No problems with redemption | Liquidity depends on market conditions and third parties (who want to trade on the exchange) |
| Tracking Error | Has a smaller tracking error than ETFs | Tracking Error are large and dependent on market conditions |
| Dividends | Option of reinvestment/distribution | "The income received by way of Dividend shall be used for recurring expenses and Redemption requirements or shall be accumulated and invested as per the investment objective of the Scheme." |
freefincal is an amazing website with incredible research-based content. The author has compared the tracking errors of ETFs and mutual as well as among mutual funds.
The quote in the dividend section is from Nippon’s document. The choice is between “we may pay you, or pay ourselves or do something else with it” vs “We will reinvest YOUR dividends to reduce tracking error and increase value”. To be fair, NIFTY BeES has a benchmark of NIFTY 50 and not NIFTY 50 TRI.
A mutual fund seems to be a better option (with wider choice ranges as well) for a long term accumulation action. ETFs are better for executing a particular strategy or some trade idea that one may have from a relatively shorter time frame (and dividends don’t matter). Among the ETFs, only Nifty BeES has some serious volumes being traded daily.
"This is my view. I could be wrong. Would love to hear other views as well.