Edelweiss Asset Management Ltd on Thursday converted two of its exchange-traded funds (ETFs)--Nifty 50 ETF and Nifty 100 Quality 30 ETF--to Nifty 50 Index Fund and Nifty 100 Quality 30 Index Fund, respectively. The announcement about the changes was made in August.

Passive investing, which includes index funds and ETFs, has become prominent among first-time investors in India as these are the most basic form of putting money in mutual funds. Both the instruments essentially mirror an index.

An index fund works like a mutual fund scheme, in which a fund manager creates a portfolio that replicates an index, which could be Sensex or Nifty. But index funds can buy them only basis the end-of-day net asset value (NAV).

Edelweiss ETF-Nifty 50 was initially launched in 2015, while Edelweiss ETF - Nifty 100 Quality 30 debuted in 2016. As of 31 August, they had assets worth ₹3 crore and ₹12 crore, respectively, under management.

With recent changes, Edelweiss Nifty 50 Index Fund will be benchmarked to Nifty 50 total return index (TRI), and Edelweiss Nifty 100 Quality 30 Index Fund will track Nifty 100 Quality 30 TRI.

According to Niranjan Avasthi, head-product marketing and digital business, Edelweiss AMC, the company’s focus now is on index funds when filing for new equity side schemes.

“We have filed our large and mid-cap, financial services fund and launched healthcare fund on the index fund platform because it provides easy access to retail investors. So, these two funds (Nifty 50 ETF and Nifty 100 Quality 30 ETF) were quite old ETFs, and we thought that converting them would be the prudent option, and most of our investors also gave the feedback that they needed index funds to set up SIPs in these funds" said Avasthi.

Avasthi believes that with the change they expect a sizeable jump in the number of investors in these two index funds.

According to experts, for most retail investors, index funds are a better option than ETFs, as they are easily accessible. For index funds, investors don’t have to open a demat account or pay brokerage. Moreover, it is expected that most retail investors are long-term investors, and they don’t have to time the markets on a daily basis to buy the units.

Rushabh Desai, a Mumbai-based mutual fund distributor, who prefers index funds to ETFs, says that in ETF prices can really fluctuate based on demand-supply and can trade at a premium from the actual price of the underlying index.

“Retail investors who do not understand the difference between the traded price and the actual price can end up buying ETFs at a premium, which is absolutely unnecessary for them. Index funds are easier to track, they don’t require a demat account and they are easier buy and sell. On the other hand, we have seen strong participation from institutional investors in ETFs as these products are traded (which can help in taking intraday / short term market movement benefits) and have a low expense ratio, but if some AMC wants good retail participation, then index fund is the way to go," Desai added.