Are SPDR Funds or Index Funds a Better Investment?


Quick Answer

Standard & Poor's depository receipt funds, or SPDR funds, provide exposure to a variety of indexes while offering features not available on index funds, explains Wilmington Trust. However, index funds have the advantage of not charging commissions on funds added after investment accounts are opened, notes The Motley Fool.

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Full Answer

SPDR funds are also known as spider funds or exchange-traded funds, explains Wilmington Trust. There are a variety of SPDR funds, each tracking a particular index. However, the first SPDR fund, started in 1993, still tracks the S&P 500 index. Individual units of an SPDR fund trade in a similar fashion to stocks, an attribute that allows investors to take advantage of price movements throughout a trading day. This is unlike index funds, which are only priced at the close of a trading day.

Investing in individual units of an SPDR fund is typically cheaper than buying into index funds, explains Wilmington Trust. This gives investors on limited budgets a way of tracking the S&P 500 and other indexes. SPDR funds are also more tax efficient and have lower annual management fees than index funds.

However, investors who prefer regularly adding small amounts of money after opening an investment account are better off investing in an index fund, suggests The Motley Fool. This is because such additions attract a commission potentially capable of negating returns. Another disadvantage of SPDR funds is that every trade attracts a commission, and frequent trading may thus make an investment unprofitable.

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