Published 18 August 2026 · By the PCJ Desk · about 6 min read · General educational information, not investment advice.
Passive investing — simply tracking a market index like the Nifty 50 instead of trying to beat it — has two main vehicles in India: index funds and ETFs (exchange-traded funds). Both aim to mirror an index at low cost, but the way you buy, hold and pay for them differs. Understanding this helps you choose the right one.
What is an index fund?
An index fund is a mutual fund that holds the same stocks, in the same weights, as an index. You buy and redeem units directly from the fund house at the day’s NAV — no demat account or stock exchange needed, and you can run a SIP into it automatically. It is the simplest passive route for most investors.
What is an ETF?
An ETF also tracks an index, but it trades on the exchange like a share. You need a demat and trading account to buy and sell it at live market prices during the trading day. ETFs often have a slightly lower expense ratio than index funds, but you may pay brokerage and face a bid-ask spread. See our ETF page for the range available.
The key differences
How you buy: index fund — from the AMC at NAV; ETF — on the exchange at market price. Account: index fund needs only KYC; ETF needs a demat account. Cost: ETFs usually have a marginally lower expense ratio but add brokerage/spread; index funds bundle a small expense ratio and no brokerage. SIP: easy and automatic in index funds; possible but clunkier for ETFs. Pricing: index fund is priced once a day (NAV); ETF is priced live through the day.
Which should you choose?
If you want simplicity and automatic SIPs without a demat account, an index fund usually fits. If you already trade, want intraday flexibility and the lowest expense ratio, an ETF can suit. Neither is universally better — both are low-cost ways to own the market. Compare with active funds in our types of mutual funds guide and the direct vs regular explainer.
Frequently asked questions
Do I need a demat account for an index fund?
No — index funds are bought directly from the fund house with just KYC; only ETFs need a demat account.
Which is cheaper, an index fund or an ETF?
ETFs often have a slightly lower expense ratio, but you add brokerage and a bid-ask spread; for small, regular SIPs an index fund can work out simpler and comparable.
Can I do a SIP in an ETF?
Some platforms allow it, but SIPs are far smoother in index funds, which are built for automatic monthly investing.
Where PCJ fits. As an AMFI-registered distributor (ARN-63632), PCJ offers index funds via PCJ Wealth and ETFs through your demat account — one relationship for both.