Key idea
An index fund's close cousin, but bought and sold on the exchange like a stock, at live prices, through a demat account.
An ETF (Exchange Traded Fund) is, most often, an index fund that trades on the stock exchange like a share. Its price moves through the day as it is bought and sold, and you need a demat and trading account to hold it, just like a stock.
Index fund vs ETF
Index fund
- Bought from the AMC
- Priced once a day (NAV)
- No demat account needed
- Easy for regular SIPs
ETF
- Bought on the exchange
- Priced live through the day
- Needs a demat account
- Trades like a share
Which suits whom
Both give low-cost, index-tracking exposure. An index fund is often simpler for someone running an automatic monthly SIP, since it needs no demat account and no live trading. An ETF suits those comfortable buying on the exchange and wanting intraday pricing. For most goal-based, SIP-driven investing, the plain index fund is the smoother fit.
ETF or index fund, the underlying idea (own an index cheaply) is the same. The difference is how you buy and hold it. Which is more convenient depends on how you invest, and that choice is yours.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.