What Is an ETF, and How Is It Different?

An ETF is a fund whose units are listed and traded on a stock exchange. Most ETFs track an index, which makes them close cousins of index funds with one important difference: how you buy and sell.

Price versus NAV

A mutual fund transacts at end-of-day NAV. An ETF transacts at whatever price the market offers at that moment, which may sit slightly above or below its underlying NAV. In thinly traded ETFs that gap can be meaningful, and a wide bid-ask spread is a real cost.

What you need

• A demat and trading account — an ETF cannot be bought like a regular fund.
• Awareness of liquidity: check traded volumes before buying.
• Brokerage and related charges, on top of the expense ratio.

ETF or index fund?

ETFs typically carry the lowest expense ratios. Index funds are simpler — no demat account, easy SIPs, and guaranteed execution at NAV. For a monthly SIP, an index fund is usually the more practical choice; for a large lump sum where cost dominates, an ETF can win.