ETF vs index certificate

What differences are there between ETFs and index certificates which are based on the same index? Is there a difference?

Hi there,

An index exchange traded fund (ETF) is an investment fund which tracks the performance of an index (generally a stock exchange index). An index certificate or index-linked certificate is a debt instrument which tracks the performance of an index.

The main difference between ETFs and index certificates for investors is that ETFs offer greater security. The reason for this is that when you buy shares in a fund, you own a share of the fund's investment capital. Funds are required to segregate their shareholder's investment capital from their other assets. Hypothetically, at least, you should be able to claim your share of the fund's capital if the fund becomes insolvent.

Tracker certificates are not segregated assets and can become worthless if the bank or other service provider that issues the certificate goes bankrupt. All you can do, in that case, is file a debt claim against the defunct bank, and the chance of recovering your money is small.

But apart from security, both of these instruments accomplish much the same task in that they let you invest in a whole index (a global stock index, for example).

Best regards from Moneyguru

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