How an index is built, what a passive fund really costs, how to buy ETFs without paying hidden spreads, and how to build a simple passive core without overlapping funds.
Index funds and ETFs aim to match a market index rather than beat it, which makes their costs and construction more important than any manager's skill. This module explains how indices are built and maintained, how to measure tracking difference and total cost, how to trade ETFs sensibly using liquidity, spreads and iNAV, and how to choose a broad passive core without buying the same shares twice.
Builds on: Mutual Funds, Start to Finish · Pairs with: Direct stocks vs mutual funds
Learn how an index provider picks companies, sets each one's weight using free float and caps, and changes the list on a fixed review calendar, and what those rules mean for the index fund or ETF you own.
Measure how closely a passive fund follows its index using tracking difference and tracking error, see where the gap comes from, and add up the full cost of an index fund or ETF over your holding period, with SEBI's 2026 limits.
Learn how an ETF's market price is kept near the value of its holdings, how to read iNAV, spreads and premiums before trading, what one purchase really costs, and what the new price bands and the liquidity window mean for you.
Design the passive part of an equity portfolio so each fund has a distinct job: compare broad, size, sector and factor indices, measure overlap by weight, look through to what you really own, and see where active funds may still fit.
Money n Wealth Academy is for education only and is not personalised investment, tax or insurance advice. Examples are illustrative. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Money n Wealth (Predics Fintech Services Pvt Ltd) is an AMFI-registered mutual fund distributor (ARN-121995) and APMI-registered PMS distributor (APRN07444).