Investors in India often wonder about the difference between ETF and mutual fund when choosing the right product for their portfolio. While both are pooled investment vehicles that allow you to diversify across asset classes, their structure, costs, liquidity, and taxation vary significantly.
This guide breaks down what is the difference between ETF and mutual fund, compares them to index funds and gold funds, and helps you decide which option aligns best with your financial goals.
Here’s a one-screen view of the difference between ETF and mutual fund:
| Feature | ETF | Mutual Fund |
| Pricing | Real-time, traded on stock exchanges | End-of-day NAV |
| Access | Requires demat + broker account | Invest directly via AMC/online platforms |
| Costs | Low TER + brokerage charges | TER + possible exit loads |
| Liquidity | Depends on market volume | AMC guarantees redemption |
| Minimum Investment | One unit (as low as ₹50–₹100) | SIPs from ₹100–₹500 |
| Taxation (Equity, FY 2025–26) | STCG @ 20%, LTCG @ 12.5% above ₹1.25 lakh | Same rules as equity MFs |
| Best For | Active traders, tactical investors | SIP investors, long-term planners |
One-line takeaway: ETFs are ideal if you prefer intraday flexibility and lower costs, while mutual funds suit investors who want automation and SIP discipline. To understand how fund costs impact your returns, check out our detailed guide on the Mutual Fund Expense Ratio and Its Impact on Returns.
An Exchange Traded Fund (ETF) is a basket of securities that trades like a stock. It mirrors an index, commodity, or asset class and can be bought and sold throughout the day. You need a demat account and a broker to transact in ETFs. Liquidity depends on trading volumes and market makers. Unlike mutual funds, which settle at NAV once a day, ETFs are sensitive to the expiry schedule in Indian markets, affecting short-term trading and arbitrage opportunities.
A mutual fund pools money from investors and is managed by an AMC. Units are bought or sold at end-of-day NAV. Investments can be done via SIPs, SWPs, or lumpsum, without needing a demat account.
Mutual funds include actively managed funds (where managers try to beat the market) and passive index funds, which simply replicate benchmarks. This is where the difference between ETF and mutual fund and index fund becomes important.
The difference between ETF and mutual fund becomes clearer when you compare them across practical aspects investors face daily. Here’s a detailed breakdown:
Takeaway: ETFs suit investors who want intraday entry/exit flexibility, while MFs are for those comfortable with end-of-day pricing.
Takeaway: ETFs are cheaper for long-term investors if brokerage costs are managed, while SIP investors may find MFs simpler despite higher TERs.
Takeaway: MFs provide assured liquidity; ETFs require checking volumes before buying.
Takeaway: Both are beginner-friendly, but MFs are more suited to disciplined SIPs, while ETFs are ideal for lump-sum or tactical entries.
Takeaway: Both deviate from index returns, but the cause differs—cost-related for ETFs, management-related for MFs.
Takeaway: ETF dividends mimic stocks, while MF dividends follow AMC-declared distribution plans.
Takeaway: MFs are easier for beginners, while ETFs integrate seamlessly for stock market investors.
Takeaway: ETFs offer more live transparency; MFs offer periodic but adequate disclosures.
Takeaway: ETFs = tactical, MFs = strategic.
Takeaway: Your choice should align with your comfort level—execution vs convenience.
Index funds are mutual funds that passively track an index. Unlike ETFs, they don’t trade intraday; you buy/sell at NAV. They allow SIPs without a demat.
Both track benchmarks, but index funds are simpler for beginners, while ETFs give flexibility.
For FY 2025–26, the tax difference between ETF and mutual fund depends on the equity proportion:
Quick Table:
| Investment Type | STCG | LTCG |
| Equity ETF / MF | 20% | 12.5% above ₹1.25L |
| Non-Equity MF / Gold ETF | Slab rates | Slab rates |
New to execution? Check our detailed guide: How to Purchase Shares in India for your first ETF or mutual fund SIP.
The difference between ETF and mutual fund boils down to structure and suitability. If you prefer real-time trading, flexibility, and lower TERs, ETFs fit best. If your goal is long-term wealth creation via SIPs, mutual funds (including index funds) are better suited.
Choose based on your goals, not hype—because the right investment wrapper can make all the difference. For beginners looking to start systematically, explore our guide on How to Start a SIP in Mutual Funds to take your first step toward goal-based investing.
An ETF trades like a stock on the exchange, while a mutual fund is bought or sold at NAV via AMC.
Equity ETFs and MFs have STCG @ 20% and LTCG @ 12.5% above ₹1.25L, while non-equity funds are taxed at slab rates.
Gold ETFs require a demat and trade intraday; gold mutual funds don’t need a demat and allow SIPs.
Yes. Index funds are mutual funds that track benchmarks, while ETFs are traded on exchanges.
Mutual funds are easier since they don’t require a demat account, unlike ETFs.
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