There are far fewer TIPS ETFs than there are open-end TIPS mutual funds. A search on IndexUniverse only returned only three TIPS ETFs. Two of them invest in TIPS in the U.S. One ETF invests in inflation indexed bonds outside of U.S.

* Retrieved from iShares and SPDR web sites on July 25, 2009. Trading volume data were from Yahoo! Finance.

In terms of total assets and trading volume, the iShares Barclays TIPS Bond ETF (TIP) absolutely dominates the other two SPDR ETFs. A larger trading volume leads to a smaller bid/ask spread.

Similar to the open-end fund VIPSX from Vanguard, the iShares ETF TIP invests in substantially all TIPS in the market. As of June 30, 2009, it held 27 of the 29 outstanding TIPS at that time. The two issues TIP did not hold had a maturity shorter than one year. TIP's portfolio holdings were very similar to that of the Vanguard fund.

* Compiled from portfolio holdings data as of June 30, 2009 obtained from iShares and Vanguard web sites on August 2, 2009. For a detailed comparison of portfolio holdings, see iShares TIPS ETF vs Vanguard TIPS Fund.

TIP can be a good alternative to the Vanguard open-end TIPS mutual fund VIPSX if an investor prefers to use an ETF or if someone can invest in an ETF more cost efficiently than in a Vanguard mutual fund, for example in a discount brokerage account which charges a low commission for ETF orders but charges a high fee for open-end mutual fund orders.

The typical disadvantages for investing in an ETF also apply to investing in TIP. The bid/ask spread and premium/discount to NAV can impose additional costs to investing in TIPS through TIP.