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.
- Fund of Funds (FoF)A fund of funds invests not in stocks or bonds directly but in units of other mutual funds, including those run by the same or other AMCs.
- 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.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.