Advertiser Disclosure
This page contains affiliate links. When you sign up through our links, we may earn a commission at no extra cost to you. This helps support our free comparison tools.
We compare investment platforms and savings accounts from multiple providers. Capital at risk. The information shown is accurate at time of display but may change.
ETF vs Index Fund – What’s the Actual Difference?
ETFs and index funds often hold the same investments. The difference between them is how you buy them.
This question is a bit mixed up
When people ask “ETF vs index fund”, they’re usually comparing two different things without realising it. An index fund is a type of fund. An ETF is a way to buy a fund. They’re not opposites.
Here’s what’s actually going on. An index fund is any fund that tracks an index. An index is a list of companies, like the FTSE 100 or the S&P 500. The fund buys all the companies in the list.
You can buy an index fund in two main ways: as an ETF or as an OEIC. These are different wrappers for the same thing. When people say “index fund” in the UK, they usually mean an OEIC that tracks an index.
So the real question is: ETF vs OEIC. Which wrapper should you use?
What’s an ETF?
An ETF (Exchange-Traded Fund) trades on the stock exchange. You buy and sell ETFs the same way you buy shares. Prices change throughout the day. You can set a limit order to buy only if the price hits a certain level.
What’s an OEIC?
An OEIC (Open-Ended Investment Company) doesn’t trade on the stock exchange. You buy directly from the fund provider through your platform. The fund has one price per day, set at a fixed time. You place an order and get whatever price is set at the next valuation point.
Same investments, different wrappers
An ETF and an OEIC can track the exact same index. For example, Vanguard’s FTSE Global All Cap Index Fund (an OEIC) and Vanguard’s FTSE All-World ETF both hold thousands of companies from around the world. The underlying investments are nearly identical.
If you held £10,000 in either for 20 years, you’d end up with almost the same amount. The difference is in how you buy them and what your platform charges.
How fees differ
Both ETFs and OEICs charge a yearly fund fee called an OCF. This comes out of the fund automatically. A typical global tracker charges 0.10% to 0.25%. That’s £1 to £2.50 a year for every £1,000 invested.
The bigger difference is platform fees. Some platforms charge percentage fees on OEICs but cap fees on ETFs. Others charge dealing fees for ETF purchases but nothing for OEICs.
On Hargreaves Lansdown, you pay 0.45% a year on OEICs but just £45 a year maximum on ETFs. However, one-off ETF purchases cost £11.95 each. Monthly direct debit investing is free for both. On Trading 212, everything is free to buy. On iWeb, both cost £5 per trade.
So the “cheaper” option depends entirely on your platform and how you invest.
Regular investing
If you invest a fixed amount every month, OEICs are often simpler. You set up a direct debit for £200 and the fund divides your money into fractional units automatically.
With ETFs, you buy whole shares. If an ETF costs £75 per share, £200 buys you 2 shares (£150) with £50 left over. Some platforms now offer fractional shares for ETFs, which solves this. But not all do.
Does the pricing difference matter?
ETF prices change throughout the day. OEIC prices are set once per day. This sounds like a big difference, but for long-term investors it rarely matters.
If you’re buying and holding for decades, whether you bought at 10am or 3pm on a Tuesday in 2025 won’t affect your returns in 2045. The daily price fluctuation is noise.
The exception is if you want to buy during a market crash at a specific price. ETFs let you do that. OEICs don’t.
ETF vs OEIC comparison
| ETF | OEIC | |
|---|---|---|
| How you buy | Like shares, on the stock exchange | Directly through your platform |
| Pricing | Changes throughout the day | One price per day |
| Limit orders | Yes | No |
| Fractional investing | Platform dependent | Usually automatic |
| Platform fees | Often capped | Often percentage-based |
| Dealing fees | Often charged per trade | Often free |
Which should you pick?
For most people investing regularly in a global tracker, it comes down to what your platform charges. The underlying investment is the same.
Check your platform’s fee structure. If it charges percentage fees on OEICs, ETFs often become cheaper as your portfolio grows. If it charges flat dealing fees for ETFs, OEICs might be simpler for monthly investing.
If you’re unsure, pick whichever is easier to set up on your platform. The fee difference between a 0.12% ETF and a 0.23% OEIC is £1.10 a year per £1,000 invested. It matters less than actually investing in the first place.
Key points
- An index fund is a type of fund – it tracks an index like the FTSE 100
- ETF and OEIC are ways to buy an index fund – different wrappers, same contents
- The real question is ETF vs OEIC – that’s what people mean when they ask this
- Performance will be nearly identical – the difference is fees and convenience
- Check your platform’s fees – the cheaper option depends on where you invest