Index fund vs ETF – which one is better to invest in 2021?

Index fund vs ETF

Last Updated on 2 years ago by Raj Kumar

Index fund vs ETF in 2021

As more and more people in Indian starting to invest in stocks and mutual funds , the interest in Index fund as well as ETF has seen significant rise. In this article lets 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?

ETF stands for exchange traded fund. ETF created to match or track the components of an Index like NIFTY 50/Sensex etc. For example the HDFC Nifty 50 ETF is created to track the performance of NIFTY 50.

Basically when you invest in an ETF then you are investing your money in the Index that the ETF is tracking. So if you for example invest in HDFC Nifty 50 ETF the fund manager of the ETF will invest in the portfolio which looks exactly similar to NIFTY 50 considering the weightage of the stocks in the Index.

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

  • An exchange traded fund (ETF) is a basket of securities that trade on an exchange, like a stock trading in the exchange
  • ETF share prices goes up and down all day as the ETF is bought and sold just like a stock.
  • ETFs can contain all types of investments including stocks, commodities, or bonds; ETF can be created for to track any underline security.
  • ETFs offer low expense ratios and fewer brokerage(depending on the stock broker) than buying the stocks individually.

How to buy an ETF?

To buy an ETF, you will need to have a demat account and 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 are the list of ETFs available of NSE for investors to purchase:-

Edelweiss AMCEdelweiss Exchange 
Traded Scheme – NIFTY
NIFTYEESNIFTY 50 Index8-May-15
ICICI Prudential AMCICICI Prudential 
 ICICINIFTYNIFTY 50 Index20-Mar-13
Motilal Oswal AMCMOSt Shares M50M50NIFTY 50 Index28-Jul-10
Quantum AMCQuantum Index Fund 
– Growth
QNIFTYNIFTY 50 Index10-Jul-08
Religare AMCReligare Invesco 
Birla Sun Life AMCBirla Sun Life NIFTY ETFBSLNIFTYNIFTY 50  Index21-Jul-11
ICICI Prudential AMCICICI Prudential 
ICICINF100NIFTY 10020-Aug-13
Kotak AMCKotak Banking ETFKOTAKBKETFNIFTY Bank4-Dec-14
Motilal Oswal AMCMOSt Shares M100M100NIFTY Midcap 10031-Jan-11
ICICI Prudential AMCICICI SENSEX Prudential 
Exchange Traded Fund
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
NIFTYBEESNIFTY 50 Index28-Dec-01
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
NETFNIF100NIFTY 10022-Mar-13
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
Bank BeES
Reliance Nippon Life 
Asset Management Limited
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
Dividend Opportunities
Opportunities 50
Reliance Nippon Life 
Asset Management Limited
Reliance ETF 
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
BHARAT 22 index
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 which trading as an ETF. so can consider an ETF to as good as 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?

Index funds are just like ETF which invest your money in a basket of securities which is aligned to an underline securities/index. The difference between Index fund and ETF is that Index funds are not actively traded in exchanges! Like mutual funds Index funds trade end of day basis and Index fund has a NAV which is reported on an end of day basis.

Index fund have an experience ratio like normal mutual funds although very low as compared with a normal mutual fund. Similar to ETF , an Index fund’s performance depends on the performance of the Index.

Features of an Index fund

  • An index fund is a portfolio of stocks or bonds designed to mimic the composition and performance of an index.
  • Index funds have lower expenses and fees than actively managed mutual funds.
  • Index funds are managed on an end of day basis as opposed to ETFs which are traded in market like stocks.

How to buy an Index fund

You can buy an index fund just like 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 fund 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 ration for Index funds are very low as compared to normal mutual funds which is around 0.10% – 0.20%.

Consider reading

Zero debt companies in India

Best dividend paying stocks in India

What is Penny stock? – List of penny stock in India

Top 100 Blue chip stocks India in 2020

Index fund vs ETF which is better?

If you are investing in stocks already and have a demat/trading account with you then it makes sense to buy ETF directly from exchanges. But if you don’t have a demat account then you can stick to buying Index funds from any mutual fund house rather than creating a demat account only for the purpose of buying ETFs.

For retail investor in the battle of Index fund vs ETF; Index funds fund win the battle because of the ease at which the investors can invest in Index funds.

Index fund vs mutual fund – what is the difference?

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

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 the fund manager.

Why should you invest in an ETF or Index funds

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

Index fund vs ETF Conclusion

If you are a retail investor; more often then not Index funds are best for you as it eliminates 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 you demat account.

As more and more people are getting awareness of ETFs , it’s popularity is gaining momentum as well. If you are an active investors and keeping tap on 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 in regular intervals time to get the most out of your investments!

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