Introduction

Index Funds and Exchange-Traded Funds (ETFs) are popular passive investment options among Indian investors, designed to replicate market indices like the Nifty 50 or Sensex. Though both aim for similar outcomes, their structure, trading mechanisms, and accessibility differ significantly.HDFC Mutual Fund

What Are They?

Index Fund: A mutual fund tracking an index with proportional holdings in underlying stocks. Acquired directly at the Net Asset Value (NAV), calculated at day's end.HDFC Mutual Fund

ETF (Exchange-Traded Fund): Also mirrors an index but is traded on stock exchanges like stocks, with real-time price updates during market hours.HDFC Mutual FundValue Research Online

Key Differences

Feature

Index Fund

ETF

Purchase Method

Through AMC or mutual fund sites

Via stock exchanges using a Demat account

Trading Time

End-of-day NAV only

Real-time intraday trading at market price

Demat Account

Not required

Mandatory for buying/selling ETFs

Liquidity

Moderate—one transaction daily

High—can be traded throughout market hours

Expense Ratio

Slightly higher

Typically lower

Ideal For

SIP users and long-term beginners

Active traders with preference for flexibility

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Choosing the Right Option

Choose an Index Fund if you:

Are new to investing and prefer simplicity.

Use SIPs and don’t have a Demat account.

Prefer limited involvement with fewer trading layers.HDFC Mutual FundValue Research Online

Choose an ETF if you:

Already hold a Demat and trading account.

Want the flexibility of intraday trading and real-time pricing.

Value lower expense ratios and immediate liquidity.HDFC Mutual FundFinolysisValue Research Online

Taxation & Cost

Taxation: Both are treated as equity investments in India. Short-Term Capital Gains (STCG, ₹1 lakh/year) taxed at 10%.FinolysisHDFC Mutual Fund