ETFs or index funds: Where should beginners invest?

Summary:Though both are passive in nature, ETFs (exchange-traded funds) and index funds differ in many ways. We break down their differences and tell which is the better option for first-time investors. ETFs (exchange-traded funds) and index funds share a common approach: they both passively invest in an index, such as the Nifty and the Sensex. They simply buy the stocks in the same proportion present in the index they are investing in. However, while ETFs are bought and sold like stocks from the stock market, index funds operate like any other mutual fund. This is the subtle difference between them. And because they differ in the way they operate, they are suited to different types of investors. Here, we examine the key differences to help you make an informed decision. ETFs vs Index funds: Key differences   ETFs Index funds Ease of investment As mentioned earlier, these funds trade on stock exchanges and must be purchased each time manually. You cannot set up SIPs for ETFs.  You can invest in index funds through SIPs, allowing for systematic monthly investments. Pricing Like stocks, ETF prices are updated in real time throughout the trading day. However, ETFs may trade at a premium or discount to th

This article was originally published on December 23, 2024, and last updated on December 17, 2025.