Definition
Index ETF vs Index FoF
Both track an index passively, but an index ETF trades on the exchange and needs a demat account, while an index fund-of-funds is bought and sold like a regular mutual fund.
An ETF is listed on the NSE/BSE, so you buy it at live market prices through a broker and a Demat Account, and liquidity depends on trading volumes. An index FoF or index fund is purchased at end-of-day NAV directly from the AMC, without needing a demat account.
ETFs can be cheaper but may trade at a premium or discount to NAV if volumes are thin. Index funds and FoFs are simpler for SIP investors, though they may carry a marginally higher expense ratio. Choose based on whether you value live trading or hassle-free SIPs.
Related terms
- ETFAn Exchange-Traded Fund trades on the stock exchange like a share and usually tracks an index, commodity or sector.
- Index FundAn index fund is a passively managed mutual fund that aims to replicate the performance of a market index by holding the same securities in the same proportions, at low cost.
- Fund of Funds (FoF)A fund of funds invests not in stocks or bonds directly but in units of other mutual funds, which may be run by the same or different AMCs.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.