A mutual fund pools money from many investors and invests it for them. An exchange-traded fund (ETF) is a fund whose units trade on the stock exchange like shares.
The words you’ll meet
- NAV (net asset value): the value of one unit of the fund, worked out at the end of each business day.
- Expense ratio: what the fund charges each year, as a percentage of your money. It is taken from the fund quietly, every day, whether the fund does well or not. Over many years, a difference of 1% a year adds up to a lot.
- Direct and regular plans: the same fund comes in two versions. A regular plan includes a commission for the distributor who sold it to you, so its expense ratio is higher; a direct plan, bought straight from the fund house or a direct platform, doesn’t.
- Exit load: a charge some funds make if you sell within a set period after buying.
Active funds, index funds and ETFs
An active fund’s manager picks investments, trying to beat the market. An index fund simply holds the shares of an index such as the Nifty 50, usually at a lower cost. An ETF is usually an index fund that trades on the exchange: you need a demat account, you buy and sell at the market price during the day, and you pay brokerage. Check that an ETF trades enough each day that buying and selling is easy.
What to look at
- What the fund actually holds, and whether that fits your goal and time horizon.
- Its expense ratio compared with similar funds.
- For index funds and ETFs, how closely it has followed its index (tracking error).
- Past returns tell you how the fund behaved, not how it will. Every fund document says so, and it’s true.
How i-wise helps
Fund Explorer shows what a fund holds, how risky it has been and how its costs compare. In Stock Health, type an ETF to see its holdings, with a health check for each company. See the research tools.
General information for education, not investment, tax or financial advice. Rules, rates and limits change: check the official sources before acting, and consider a SEBI-registered investment adviser for advice on your own situation.