Index fund vs ETF – which one is better to invest in 2023?

Index fund vs ETF | what is an index fund and features of Index fund | what is an ETF and features of ETF | which is better between index fund and an ETF

This post was most recently updated on December 17th, 2022

As more and more people in Indian starting to invest in stocks and mutual funds, the interest in an Index fund, as well as ETFs, has seen a significant rise. In this article, let’s understand the basics of Index fund vs ETF and find out which option is best for you to invest in.

What is an ETF in India?

An exchange-traded fund (ETF) is a type of investment vehicle that tracks the performance of a specific market index, such as the Nifty 50 or the BSE Sensex, or a specific asset class, such as gold or energy. ETFs are traded on a stock exchange, just like stocks, and they offer investors an easy and convenient way to diversify their portfolio and gain exposure to a broad range of assets.

In India, ETFs are regulated by the Securities and Exchange Board of India (SEBI). They can be bought and sold through a brokerage account just like stocks. ETFs are popular among investors in India because they offer a low-cost and convenient way to invest in a diversified portfolio of assets. They also offer the benefits of professional management and the potential for significant returns over the long term.

Index fund vs ETF
Index fund vs ETF

So your investment returns will depend on the performance of the Index, if the Index goes up then your returns go up. If the Index goes down then your returns will go down.

Features of an ETF

Here are some key features of exchange-traded funds (ETFs):

  1. Diversification: ETFs allow investors to diversify their portfolios by providing exposure to a wide range of assets, such as stocks, bonds, commodities, and real estate.
  2. Professional management: ETFs are managed by professional investment firms, which can help to reduce the time and effort required to manage a portfolio.
  3. Low costs: ETFs typically have lower fees than actively managed mutual funds, which can help to increase returns over the long term.
  4. Transparency: ETFs provide investors with transparency about the assets in the fund, as well as the fund’s performance and holdings.
  5. Liquidity: ETFs are traded on a stock exchange, which means they can be bought and sold throughout the trading day. This can make them more liquid than some other investment vehicles.
  6. Flexibility: ETFs offer investors the flexibility to invest in a wide range of assets and markets, and they can be bought and sold like stocks.
  7. Tax efficiency: ETFs may be more tax-efficient than other investment vehicles because they typically have lower turnover rates and generate fewer capital gains.

How to buy an ETF?

To buy an ETF, you will need to have a Demat account and a trading account with a broker. From the Demat account, you can buy any ETFs from the exchanges.

What are the ETFs available in India for purchase?

Below is the list of ETFs available of NSE for investors to purchase:-

ISSUER NAMENAMESYMBOLUNDERLYING IndexLAUNCH DATE
Edelweiss AMCEdelweiss Exchange 
Traded Scheme – NIFTY
NIFTYEESNIFTY 50 Index8-May-15
ICICI Prudential AMCICICI Prudential 
NIFTY ETF
 ICICINIFTYNIFTY 50 Index20-Mar-13
Kotak AMCKotak NIFTY ETFKOTAKNIFTYNIFTY 50 Index2-Feb-10
Motilal Oswal AMCMOSt Shares M50M50NIFTY 50 Index28-Jul-10
Quantum AMCQuantum Index Fund 
– Growth
QNIFTYNIFTY 50 Index10-Jul-08
Religare AMCReligare Invesco 
NIFTY ETF
IVZINNIFTYNIFTY 50 Index13-Jun-11
SBI AMCSBI ETF NIFTYSETFNIF50NIFTY 50 Index23-Jul-15
UTI AMCUTI NIFTY ETFUTINIFTETFNIFTY 50 Index3-Sep-15
Birla Sun Life AMCBirla Sun Life NIFTY ETFBSLNIFTYNIFTY 50  Index21-Jul-11
ICICI Prudential AMCICICI Prudential 
CNX 100 ETF
ICICINF100NIFTY 10020-Aug-13
Kotak AMCKotak Banking ETFKOTAKBKETFNIFTY Bank4-Dec-14
SBI AMCSBI ETF BankingSETFNIFBKNIFTY Bank20-Mar-15
Motilal Oswal AMCMOSt Shares M100M100NIFTY Midcap 10031-Jan-11
SBI AMCSBI ETF NIFTY JuniorSETFNN50NIFTY Next 5020-Mar-15
Kotak AMCKotak PSU Bank ETFKOTAKPSUBKNIFTY PSU BANK8-Nov-07
ICICI Prudential AMCICICI SENSEX Prudential 
Exchange Traded Fund
ICICISENSXS&P BSE Sensex10-Jan-03
UTI AMCUTI Sensex ETFUTISENSETFS&P BSE Sensex3-Sep-15
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
NIFTY BeES
NIFTYBEESNIFTY 50 Index28-Dec-01
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
NIFTY 100
NETFNIF100NIFTY 10022-Mar-13
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
Bank BeES
BANKBEESNIFTY Bank27-May-04
Reliance Nippon Life 
Asset Management Limited
CPSE ETFCPSEETFNIFTY CPSE Index28-Mar-14
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
Dividend Opportunities
NETFDIVOPPNIFTY Dividend 
Opportunities 50
15-Apr-14
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
Consumption
NETFCONSUMNIFTY India 
Consumption
3-Apr-14
Reliance Nippon Life 
Asset Management Limited
Reliance ETF Infra BeESINFRABEESNIFTY Infrastructure29-Sep-10
Reliance Nippon Life 
Asset Management Limited
Reliance ETF Junior BeESJUNIORBEESNIFTY Next 5021-Feb-03
Reliance Nippon Life 
Asset Management Limited
Reliance ETF PSU 
Bank BeES
PSUBNKBEESNIFTY PSU BANK25-Oct-07
ICICI Prudential AMCBHARAT 22 ETFICICIB22S&P BSE 
BHARAT 22 index
28-Nov-17
List of ETFs available in India

What are the charges applicable while purchasing an ETF?

When you buy an ETF, effectively you are buying a basket of stock that is trading as an ETF. so can consider an ETF to be as good as a stock while buying/selling. So to purchase an ETF you will need to pay the applicable fees-

  • Brokerage(including GST)
  • STT
  • Stamp duty
  • any other charge(depending on broker)

What is an Index fund in India?

An index fund is a type of mutual fund that tracks the performance of a specific market index, such as the Nifty 50 or the BSE Sensex. Index funds are designed to provide investors with a low-cost and convenient way to invest in a diversified portfolio of stocks or other assets that represents a broad market or sector.

In India, index funds are regulated by the Securities and Exchange Board of India (SEBI). They are managed by professional investment firms and can be purchased through a brokerage account or directly from the fund manager.

Index funds offer several benefits to investors in India, including diversification, professional management, low costs, and the potential for significant returns over the long term. They can be an attractive option for investors who want to participate in the stock market without the time and effort required to actively manage a portfolio.

Features of an Index fund

Here are some key features of index funds:

  1. Diversification: Index funds provide investors with exposure to a diversified portfolio of stocks or other assets that represents a broad market or sector. This can help to reduce risk and increase the potential for returns.
  2. Professional management: Index funds are managed by professional investment firms, which can help to reduce the time and effort required to manage a portfolio.
  3. Low costs: Index funds typically have lower fees than actively managed mutual funds, which can help to increase returns over the long term.
  4. Transparency: Index funds provide investors with transparency about the assets in the fund, as well as the fund’s performance and holdings.
  5. Flexibility: Index funds offer investors the flexibility to invest in a specific market or sector, and they can be bought and sold through a brokerage account.
  6. Tax efficiency: Index funds may be more tax-efficient than other investment vehicles because they typically have lower turnover rates and generate fewer capital gains.
  7. Automatic rebalancing: Index funds are typically automatically rebalanced to maintain their desired asset allocation, which can help to maintain a diversified portfolio.

How to buy an Index fund

You can buy an index fund just like a mutual fund. You don’t need a Demat account to buy an Index fund. You can simply buy an Index fund from an AMC’s website or mutual fund platforms like PayTM Money and Grow.

What Index funds are available in India for purchase?

Below are the Index funds available for purchase from different AMCs-

Scheme NameBenchmark
Aditya Birla Sun Life IndexNIFTY 50 Total Return Index
DSP Nifty 50 Index FundNIFTY 50 Total Return Index
DSP Nifty Next 50 Index FundNIFTY Next 50 Total Return Index
Franklin India Index NSE NiftyNIFTY 50 Total Return Index
HDFC Index Fund Nifty 50 PlanNIFTY 50 Total Return Index
HDFC Index SensexS&P BSE Sensex Total Return Index
ICICI Prudential Nifty Index FundNIFTY 50 Total Return Index
ICICI Prudential Nifty Next 50 Index FundNIFTY Next 50 Total Return Index
ICICI Prudential Sensex Index FundS&P BSE Sensex Total Return Index
IDBI Nifty IndexNIFTY 50 Total Return Index
IDBI Nifty Junior IndexNIFTY Next 50 Total Return Index
LIC MF Index NiftyNIFTY 50 Total Return Index
LIC MF Index SensexS&P BSE Sensex Total Return Index
Motilal Oswal Nifty Bank Index FundNIFTY Bank Total Return Index
Motilal Oswal Nifty Midcap 150 Index FundNIFTY Midcap 150 Total Return Index
Motilal Oswal Nifty Smallcap 250 Index FundNIFTY Smallcap 250 Total Return Index
Nippon India Index NiftyNIFTY 50 Total Return Index
Nippon India Index SensexS&P BSE Sensex Total Return Index
SBI Nifty IndexNIFTY 50 Total Return Index
Tata Index NiftyNIFTY 50 Total Return Index
Tata Index SensexS&P BSE Sensex Total Return Index
Taurus Nifty IndexNIFTY 50 Total Return Index
UTI Nifty IndexNIFTY 50 Total Return Index
UTI Nifty Next 50 Index FundNIFTY Next 50 Total Return Index
List of Index funds in India

What are the charges applicable while purchasing an Index fund in India?

When you purchase an Index fund; you just pay the expense ratio for the mutual fund. Generally, the expense ratio for Index funds is very low as compared to normal mutual funds which are around 0.10% – 0.20%.

Consider reading

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Index fund vs ETF which is better?

It can be difficult to determine which is better, an index fund or an exchange-traded fund (ETF), as it ultimately depends on the individual investor’s financial goals and risk tolerance. Both index funds and ETFs offer a convenient and low-cost way to invest in a diversified portfolio of stocks or other assets, and they can be attractive options for long-term investors.

Here are some factors to consider when comparing index fund vs ETF:

  1. Cost: Both index funds and ETFs tend to have lower fees than actively managed mutual funds, but ETFs may have slightly lower fees than index funds.
  2. Diversification: Both index funds and ETFs provide investors with exposure to a diversified portfolio of stocks or other assets, but ETFs may offer a wider range of investment options.
  3. Liquidity: ETFs are traded on a stock exchange and can be bought and sold throughout the trading day, while index funds can only be bought or sold at the end of the trading day. This may make ETFs more liquid than index funds.
  4. Tax efficiency: Both index funds and ETFs may be more tax-efficient than other investment vehicles because they typically have lower turnover rates and generate fewer capital gains.

FAQs on Index fund vs ETF

  1. Index fund vs mutual fund – what is the difference?

    An index fund is just another type of mutual fund. Index funds invest your money in an underline index whereas other types of mutual funds directly invest in stocks or other securities.

  2. What is Tracking Error in ETFs?

    Tracking error is the difference in actual performance between an ETF and its corresponding benchmark Index. The tracking error can be viewed as an indicator of how actively/properly a fund is managed and its corresponding risk level. Evaluating a past tracking error of a fund manager may provide insight into the level of benchmark risk control of the fund manager.

  3. Why should you invest in ETF or Index funds?

    Investing in ETF/Index fund reduces your risk of overexposing your investment in one stock/security. Indexes in general perform really well over the long run. ETF/Index funds have relatively low levels of expenses and provide good liquidity for investors.

Index fund vs ETF Conclusion

If you are a retail investor; more often than not Index funds are best for you as it eliminates the overhead of creating a Demat account to buy ETFs, you can skip all the hassle of paying account maintenance fees and all the hidden charges to maintain your Demat account.

As more and more people are getting awareness of ETFs, their popularity is gaining momentum as well. If you are an active investor and keep tapping into the market then ETFs are a great choice for you.

The battle of Index fund vs ETF is immaterial if you are a disciplined investor and can invest in markets at regular intervals time to get the most out of your investments!

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