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ETF or index tracker?

  • 22-04-2009 8:27am
    #1
    osurdivol
    Closed Accounts Posts: 11 ✭


    I have approx 60,000 in a unit linked fund have noted in my general reading that trackers outperform managed funds. It has long been my intention to move into buying individual shares to have an eventual dividend income but I am coming to the conclusion that perhaps a tracker or ETF would be less stressful. Not sure exactly what the difference is between an ETF and index tracker. Will either pay a dividend? if I had a traker or ETF for a few indices or categories would this be a good diversification? Any advice appreciated thanks.


Comments

  • #2
    A Random Walk
    Closed Accounts Posts: 346 ✭✭A Random Walk


    I can answer some of your questions but I'd need a lot more information to say anything about your specific circumstances.

    ETFs (in 99% of cases) are index trackers. An ETF is like a big bucket in which small amounts of individual shares are held. The website of the ETF owner should describe which index the ETF tracks.

    Whether you get good diversification or not depends on which ETF(s) you buy. Some ETFs are very specific e.g. the Irish ISEQ ETF will track just ISEQ shares. You can also buy "All World" ETFs which track very broad indices. There's a huge universe of ETF choices and some can be a bit gimmicky.

    ETFs pay dividends if the underlying companies in the index pay dividends. There are specific ETFs out there which focus only on dividend paying stocks which may be suitable.

    You should have a close look at costs. Because you have to pay spreads and stockbroker fees buying ETFs, you probably don't want to be putting small regular amounts into them. However, holding an ETF for a long term is often cheaper than buying a unit linked fund as the annual fees are usually cheaper.

    If I was you I'd visit Vanguard or iShares and have a read of their ETF overviews and get an idea of the types of ETFs on offer.


  • #3
    ferga_com
    Closed Accounts Posts: 159 ✭✭ferga_com


    There is also a tax difference between ETFs and index-tracking unit-linked funds. ETFs are taxed like shares, i.e. Capital Gains Tax applies and losses on one ETF can be offset for CGT against gains on another ETF, a share or an investment property. Most index-tracking unit-linked funds fall into the Exit Tax regime, where tax is levied on gains on the eighth anniversary or encashment, whichever occurs first. However, if you switch between index-tracking funds within a unit-linked product this is not a taxable event.


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