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  • Basket of assets: An ETF is a universe of assets which includes stocks, bonds, commodities, currencies and create a basket of them to provide diversification to investors in their portfolio.
  • Trading flexibility: Buyers and sellers trade ETFs throughout the day on exchanges similar to stock. Its pricing is continuous during the trading hours.
  • Portfolio diversification: Operating costs in the exchange-traded funds is lower compared to other mutual funds. It also has lower expenses in the area of monthly statements, notifications, and transfers. Traditional open-end mutual fund companies are required to send statements and reports to shareholders on a regular basis.


No. Exchange trade funds are not tax-free. One needs to pay 15% short-term capital gain tax if they exit from the scheme before 3 years.


No. The exchange-traded funds are not the same as index funds. The ETFs are low-cost and tax-efficient investments which invest in stocks, commodities, bonds, etc. directly. However, index funds are very similar to high-cost mutual funds and these are always traded through a fund manager to ensure the functioning is not impacted.

  • ETFs track the index of a specific exchange while index funds replicate the performance of the benchmark market index.
  • ETFs are traded like stocks while index funds are treated as mutual funds.
  • The pricing of ETFs is based on the demand and supply in the market while index funds are purchased on the basis of NAV of the underlying assets.


Exchange-traded funds and mutual funds both are created with an idea of pooled funds investments that tries to track and replicate the benchmark indices. Even with similar concepts, both concepts have diversification which is state below:

  • Exchange trade mutual funds are passively managed while mutual funds are actively managed investments.
  • Exchange rates track indices while mutual funds offer a wide range of multiple assets which are chosen after extensive research by the fund management team.
  • ETFs actively trade throughout the trading day while mutual fund trades close at the end of the trading day.


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