ETP vs ETF: Key Differences Explained

Investing terms often sound similar, but they do not always mean the same thing. This is one of the primary reasons why understanding the financial terms is important. Just like there is a difference between investing and trading, there are different categories of products as well. 

One such difference that investors need to understand is between the ETP and the ETF. While both of these are traded on the stock exchange, the deeper meaning of these is quite different. Knowing the same is crucial if you wish to invest right.

So, read this guide to know about these two terms and ETP vs ETF. Explore the key points of difference and all the aspects in detail here. 

What Is ETP?

An Exchange Traded Product, or ETP, is a broad investment instrument. It trades on stock exchanges like a share. These funds track the performance of the underlying asset, which is the key point. Through these, investors gain market exposure without directly owning the asset. 

Key Features

• Traded during normal stock market hours on exchanges.

• Tracks an index, commodity, currency, or investment strategy.

• Can be structured as funds, notes, or trusts.

• Prices change throughout the trading day.

• Direct access to the market will be easy. 

Pros

• Easy to buy and sell through a demat and trading account.

• Provides wider market exposure through a single product.

• Lower entry cost as compared to the rest.

• Perfect for short and long-term goals.

• Supports portfolio diversification. 

Risks

• Risk of the underlying asset is there.

• Credit risk in case of note-based ETPs.

• Tracking error can impact the outcome and benchmark.

• Limited liquidity risk when investing in passive ones. 

• Regulatory and structural complexity in certain products.

What Is an ETF?

An Exchange Traded Fund, or ETF, is a market-linked investment fund. It mainly tracks an index, sector, commodity, or a basket of assets. ETFs are designed to mirror the performance of the underlying benchmark. These are perfect for long-term investors and those who wish for passive investment. 

Key Features

• Trades on stock exchanges during market hours.

• Like index, sector, asset basket, or commodity ETFs.

• Holds underlying securities in the same proportion as the index.

• Offers real-time pricing throughout the day.

• Regulated as a mutual fund structure.

Pros

• Lower expense ratio as compared to other types of mutual funds.

• High level of transparency and ease of trades.

• Works well for long-term and passive investing.

• Entry and exit are quite simple.

• Helps in spreading risk across multiple securities.

Risks

• Market risk is not easy to identify.

• Tracking error makes returns uncertain a lot.

• Liquidity risk in ETFs with low trading volumes.

• No protection is there is a market fall.

• Returns depend fully on benchmark performance.

ETP vs ETF Difference

The ETP vs ETF difference lies mainly in structure and scope. ETP is a broad category of products, while ETF is a specific fund-based product designed for transparent, passive investing.

Who Should Invest in ETP and ETF?

Choosing between ETP and ETF is not easy. It depends on multiple factors like your experience and investment goals. Analysis of the risk and return expectations is also important in this case. Both products suit different types of investors.

Who Should Invest in ETP?

• Investors with good market knowledge and experience.

• Those looking for exposure to commodities, currencies, or complex strategies.

• Traders are comfortable with higher risk and price volatility.

• Investors seeking short to medium-term opportunities.

• Those who understand credit and structural risks.

Who Should Invest in ETFs?

• Beginners looking for a simple investment option.

• Steady growth seekers. 

• Those who want better diversification of assets.

• Looking for an easy choice with no issue.

• Perfect if you want a low-fee choice.

Conclusion

Understanding the ETP vs ETF difference is very important. This will help you to invest with proper clarity. ETPs offer wider choices but carry higher complexity and risk. ETFs are simpler and transparent. These are good for most long-term investors. 

But when it comes to investing, your choice should match your risk comfort and investment goal. And if you want help choosing the right market instrument, explore smart investing tools and guides. Register on Rupeezy to make informed decisions with ease.

FAQs

What is the main difference between ETP and ETF?

ETP is a broad category of exchange-traded products. On the other hand, ETF is a specific type of ETP. In other words, all ETFs are ETPs, but not all ETPs are ETFs.

Are ETFs safer than ETPs?

Yes. In general terms, ETFs are safer as compared to ETPs. But at the same time, it is important to note that there are certain ETPs that may carry a high level of risk.

Can beginners invest in ETPs?

ETPs are better suited for experienced investors. But if you are a beginner, you must go for the ETFs. 

Do ETPs and ETFs trade like shares?

Yes, both ETPs and ETFs are traded on stock exchanges during market hours, and their prices change throughout the day.

Which is better for long-term investing, ETP or ETF?

ETFs are usually preferred for long-term investing because of lower costs, clear regulation, and stable exposure to indices or asset baskets.