No One Can Time The Market: Amit Vashisht On Index Funds vs. ETFs

In one of the recent “Investment Made Easy” podcasts, Amit Vashisht, lead - ETFs, ICICI Prudential AMC, described the much-hyped realm of index funds and exchange-traded funds (ETFs).

Vashisht highlighted the most important difference: “The primary difference between index funds and ETFs lies in how they are traded.” Index funds, like regular mutual funds, are purchased and sold from the fund sponsor directly at end-of-the-day net asset value (NAV). ETFs are traded on an exchange throughout the day, similar to individual company stocks, at market-determined prices that sometimes diverge from their NAV.

Although both passively track underlying indices and provide advantages such as lower fees and wide diversification, Vashisht added that investors need to examine their tolerance for intra-day trading. For those with a greater tolerance for intra-day trading flexibility, ETFs would be ideal, but index funds provide a more conventional end-of-day price structure.

On volatility in the market, Vashisht explained that index funds and ETFs, which are diversified portfolios, provide stability compared to individual stocks. He strongly discouraged market timing.

He said: “No one can time the market.” 

He instead suggested systematic investment plans (SIPs) to average the cost in the long run, particularly when the market is falling. He further emphasised investing for long-term objectives, generally suggesting a minimum duration of five years for equity-based passive funds to ride out market cycles in good health.