An Exchange Traded Fund (ETF) is a mutual fund that trades on a stock exchange like a share — tracking an index or asset with real-time pricing instead of end-of-day NAV.
An ETF holds a basket of securities (stocks, bonds, gold, etc.) that typically mirrors an index like Nifty 50 or Sensex. Unlike regular mutual funds that price once a day at closing NAV, ETF units trade on NSE/BSE throughout the trading day, with prices fluctuating in real time. You buy/sell ETF units through a demat account and a broker, not through the AMC directly. ETFs have the lowest expense ratios of any investment product — typically 0.02%–0.1% for equity ETFs.
An ETF is like a basket of stocks sold as one share. If you buy one unit of the Nifty 50 ETF, you own a tiny slice of all 50 companies in the Nifty index. You buy it through Zerodha or Groww just like buying a stock — and the price changes every second. It's the cheapest and most flexible way to get broad market exposure. The trade-off: you need a demat account and must buy/sell at market price (which may slightly differ from the underlying value).
ETF units are created by AMCs in large blocks called 'creation units' — sold to authorised participants (large institutions) at the underlying NAV.
These units then trade on exchange like shares — retail investors buy/sell through their broker.
Price = approximately the NAV of the underlying portfolio. Small price-NAV differences (premium/discount) are arbitraged away quickly.
Unlike index mutual funds, ETF trading requires a demat account.
ETFs pay no dividends for equity ETFs (gains reinvested in the form of higher NAV) or may declare dividends for some bond ETFs.
Nifty 50 Index Fund (Mutual Fund) vs Nifty 50 ETF: - Index Fund: No demat needed, invest via SIP from ₹500, transacted at end-of-day NAV. TER ~0.1%. - ETF: Demat required, buy/sell at live price, no minimum SIP (buy 1 unit at market price). TER ~0.05%. For SIP investors: index mutual funds are more convenient. For lump-sum or tactical investors: ETFs offer lower cost and flexibility.