Risk and Return dynamics of ETF and Index Funds: A Review of Existing Literature

Abstract

In Last 10 years, ETFs or Exchange Trade Funds have gained a lot of popularity in terms of a passive investment vehicle amongst the professional and retail investors due to low costs of transactions as well as high liquidity. The ETF industry has crossed $7 trillion mark in 2020. ETFs have completely revolutionized asset management segment by taking the share of the market from vehicles of traditional investment like index future and mutual fund. Lower transaction cost is one of the key advantage of ETFs over index funds. Index funds are type of mutual funds which replicate an index and have same stocks in their portfolio that are present in an index. Index funds are managed by fund managers and past studies have also evaluated performance of fund managers of index funds. This literature review helps in evaluating how ETFs & Index funds perform by analyzing the past academic studies.