Index Funds vs ETFs: What's the Difference?
An index fund is a strategy — tracking a market index. An ETF is a structure — a fund that trades on an exchange like a stock. Many ETFs are index funds, so the choice is mostly about how you buy and hold them.
| Index mutual fund | ETF | |
|---|---|---|
| How it trades | Once per day at closing price (NAV) | All day at market price |
| Minimum investment | Sometimes $1,000+ | Price of one share (or fractional) |
| Costs | Low for index versions | Low; usually no load |
| Tax efficiency (U.S. taxable accounts) | Good | Usually better, due to in-kind redemptions |
| Automatic monthly investing | Easy | Depends on broker |
Bottom line
Both can be excellent low-cost choices. Pick ETFs for flexibility and tax efficiency in taxable accounts; index mutual funds if you want effortless automatic investing.