Index funds, ETFs and model portfolios compared

An index fund or ETF holds an index for you through units of a fund, while a model portfolio or direct indexing holds the same kind of rule based list as shares in your own demat. The pages below compare the routes on cost, tracking error, tax and control, with calculators for expense ratio and tracking error.

11 pages and terms
Free, no signup
4 questions answered

3Guides

Long form answers with worked Indian examples.

1Learn modules

Free lessons with a quiz and a certificate.

Free module 6.4ETFs, How They Work and Why They Matter for Systematic InvestorsHow ETF units are created and redeemed, why price and NAV can differ, and what that means for a systematic strategy.

2Calculators

Put your own numbers on the idea.

1Comparisons and more

Side by side pages, hubs and the rest of the site.

PageIndex Investing in India, Rules Based IndicesIndex investing in India beyond the Nifty 50: rules based momentum, factor and multi asset indices on NSE and BSE that you own stock by stock.

3Glossary terms

The words, in plain language.

Index fund: Mutual fund that replicates an index. Low cost, no active management.
ETF: Exchange Traded Fund. Like an index fund but trades on exchange like a stock.
Tracking error: How far a portfolio's returns wander from its benchmark's, measured as the ups and downs of the gap between the two.

Search every RupeeCase page for index fund

Questions about index funds vs model portfolios

What is the difference between an index fund and an ETF?

Both track an index. An index fund is invested in through the fund house at the day’s NAV; an ETF trades on the exchange during market hours like a share.

What is tracking error?

How much a fund’s return wanders from its index, measured as the standard deviation of the gap. The calculator works it out from two return series.

What is direct indexing?

Holding the stocks of an index or rule based list directly in your demat instead of through fund units. The guide covers cost, tax and effort.

Which costs differ between the routes?

Funds charge an expense ratio every year on the whole amount; direct holdings pay trading charges when the list changes. The expense ratio calculator shows the yearly drag.

TMore topics