ETF vs Index Fund — What’s the Difference?
Both track an index at low cost, but they trade differently. Here’s how to choose between an ETF and an index fund.
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Both ETFs and index funds are passive investments that aim to mirror an index like the Nifty 50 at low cost. The difference is mostly in how you buy and hold them.
How they trade
- An ETF trades on the exchange like a stock — you buy and sell units at live prices through your demat account, and prices move through the day.
- An index fund is a mutual fund — you buy/redeem units at the day’s NAV, with no demat needed and easy SIPs.
Cost and convenience
Both have low expense ratios. ETFs can be marginally cheaper but add brokerage and a possible bid-ask spread; their market price can briefly drift from the underlying value in thin trading. Index funds are simpler for automated, regular investing.
Which should you pick?
- Index fund — if you want hassle-free SIPs and don’t have (or want) a demat/trading setup.
- ETF — if you want intraday flexibility and already trade on the exchange.
Both track an index, so watch tracking error — how closely the fund follows its benchmark. See our what is an ETF and active vs passive guides. Education only, not advice.
