Index fund vs ETF

An index fund and an ETF can both follow the same index. The difference is how you buy and sell them. You buy an index fund from the fund house at its NAV, worked out once a day. An ETF trades on the stock exchange all through the day, through a broker, at the price buyers and sellers agree on right then, like a share.

Index fund and ETF side by side

	Index fund	ETF
What it is	A mutual fund that copies a market index	A fund whose units trade on the exchange, often copying an index
How you buy	From the fund house, directly or through an app	Through a broker, on the exchange
Price you get	The NAV, worked out once at the end of the working day	The market price at that moment, which can differ a little from the NAV
When you can trade	You place the order and it is done at that day's NAV	Any time the exchange is open
What you usually need	A fund account; a demat account is not always required	A trading account and a demat account
Investing regularly	Easy to set up a SIP	You buy units yourself each time, unless your broker offers a plan
Does it promise a return	No, it follows the index up and down	No, it follows the index up and down

What they share

Both can copy an index instead of trying to beat it, so both follow the market up and down. Both charge a yearly fee, the expense ratio, which is taken out of the fund's value. Neither promises a return.

The NAV in each

An ETF has an NAV too, but you do not buy or sell at it. ETF units trade all through the day on the exchange, at whatever price buyers and sellers agree on right then, the same way an ordinary share does. An index fund is bought and sold at its NAV.

What changes for you

An ETF gives you the price on the screen and the ability to trade during the day, and it needs a trading and demat account. An index fund is simpler to buy and to invest in regularly, but you get the end-of-day price. Which suits you depends on how you want to buy and how often.

Check the details

Charges, the index followed and how closely the fund tracks it differ from one fund to another. Read each fund's documents before you choose. Maetis does not give investment advice.

Buying ₹10,000 of each (hypothetical)

Suppose a fund's NAV is ₹100 at the end of the day. If you place an index fund order that day, you buy 100 units at ₹100. If you buy the ETF through a broker at 11 a.m., you pay the price at that moment, say ₹100.40, and get about 99 units. The ETF's market price moves through the day while the index fund's price is set once.

Common questions

Is an ETF the same as an index fund?: No. Both can follow an index, but an ETF trades on the exchange all day and an index fund is bought at its daily NAV from the fund house.
Which is cheaper, an index fund or an ETF?: It varies by fund. Both tend to cost less than funds where a manager picks shares, so compare each fund's expense ratio.
Do I need a demat account for an ETF?: Usually yes, because ETF units trade on the exchange and are held in a demat account.
Can I do a SIP in an ETF?: Not in the same simple way as in an index fund, unless your broker offers a plan for it. Check with your broker.

This page compares ideas and does not recommend either one. Maetis does not give investment, tax or legal advice.