Index Funds vs ETFs

🟢 Understanding the Difference

Index funds and ETFs are often mentioned together — and for good reason. They share the same core principle. But they are not identical, and understanding the difference helps you choose the right product for your situation.

The Shared Foundation

Both index funds and ETFs are designed to track a market index — such as the SET Index, the S&P 500, or the MSCI World. Rather than selecting individual investments, both aim to replicate an index. They do this either by holding its constituents or, as with many Thai funds on foreign indices, by investing in a foreign ETF that does so.

This passive approach means neither requires active management decisions — which is why both tend to have lower fees than actively managed funds.

What an Index Fund Is

An index fund is a type of mutual fund — it pools money from many investors and uses it to replicate the holdings of a specific index.

You purchase units directly from the fund provider — typically a bank or fund management company. The price is calculated once per day, after markets close, based on the total value of the fund’s assets.

In Thailand, domestic index funds typically track the SET50 or SET100. Funds on global indices such as the S&P 500 are usually feeder funds, some with currency hedging, and their total costs include the fees of the underlying ETF. They are available through fund managers and their selling agents, including major banks and regulated investment platforms.

What an ETF Is

An ETF — Exchange Traded Fund — also tracks an index. But unlike a traditional index fund, it is listed and traded on a stock exchange throughout the trading day, just like an individual stock.

You can buy ETF units through a securities account with a broker, where the price moves with supply and demand during SET trading sessions. Some Thai ETFs can also be bought through a fund account with the issuing fund manager or its selling agents, at the end-of-day NAV like a regular fund. On the exchange, the price closely reflects the value of the underlying assets.

Key Differences

	Index Fund	ETF
Trading	Once per day	During SET trading sessions; via fund account once per day at NAV
Purchased through	Fund manager or selling agent (e.g. bank, platform)	Broker securities account; some Thai ETFs also via fund account
Minimum investment	Often very low (some funds from 1 THB)	Usually one board lot of 100 units on the SET (smaller odd lots possible, less liquid); via fund account as set by the fund manager
Fees	Annual TER plus any sales/redemption fee (see fund fact sheet)	Annual TER plus broker commission, exchange fees and VAT on every trade
Automatic investing	Often available	Depends on broker
Tax (individuals)	Capital gains on Thai fund units tax-exempt; dividends 10% withholding tax (can be final)	Capital gains on SET-listed ETFs tax-exempt; dividends 10% withholding tax (can be final)
Availability (TH)	Wide (fund managers, banks, platforms)	Small range on the SET; foreign ETFs also via DRs on the SET or a broker’s offshore account

Which One Is Right for You?

The right choice depends on your situation — not on one being objectively superior.

An index fund may be more suitable if:

You want to invest automatically each month through a bank or platform
You prefer not to manage a brokerage account
You want to use Thai tax-deductible fund classes. RMF: up to 30% of income, max. 500,000 THB a year combined with other retirement savings; sold from age 55 after at least 5 years. Thai ESG: up to 30% of income, max. 300,000 THB a year for purchases until 31 December 2026, separate from the RMF limit; held at least 5 years. SSF purchases no longer qualify for a deduction since 2025.
You are comfortable with once-daily pricing

An ETF may be more suitable if:

You already have a brokerage account
You want very low fees and broad global exposure
You prefer the flexibility of buying and selling during market hours
You want international exposure. In Thailand this is available through Thai funds that invest abroad, DRs on foreign shares and ETFs traded on the SET, or foreign-listed ETFs held in a broker’s offshore account.

Many long-term investors use both — Thai index funds for local, tax-advantaged exposure and international ETFs for global diversification.

Tax note: For Thai tax residents (180 days or more a year in Thailand), dividends and capital gains from foreign-listed ETFs are taxable in the year the money is brought into Thailand. This applies to income arising from 1 January 2024. US dividends are also subject to US withholding tax: 15% if you are documented as a Thai resident, otherwise 30%. Capital gains on Thai funds, SET-listed ETFs and DRs sold on the SET remain tax-exempt for individuals. A proposed exemption for foreign income brought in within the same or following year had not been enacted as of August 2026, so check the Revenue Department’s current rules.

A Note on Costs

In Thailand, compare two cost layers separately. The first is the annual fee inside the fund (Total Expense Ratio, TER), shown in the fund fact sheet; it applies to index funds and ETFs alike. The second is what you pay to buy and sell. For index funds, that is any sales, redemption or switching fee; for ETFs on the SET, it is the broker’s commission plus exchange fees and VAT on every trade.

Annual fees of comparable Thai index funds and ETFs can differ by only a fraction of a percentage point, so trading costs matter, especially for small, regular purchases.

International ETFs bought through a Thai broker’s offshore account often have very low TERs. However, foreign trading commissions (sometimes with a minimum per order), possible currency exchange fees and foreign withholding tax on dividends add to the total cost.

Even small differences in total costs compound significantly over 20 or 30 years.

Key Takeaways

Both index funds and ETFs track a market index passively — neither involves active stock selection
Index funds are purchased through banks or platforms, priced once daily
ETFs are traded on stock exchanges throughout the day via a brokerage account
ETFs offer trading during SET sessions; index funds offer easy automatic investing and access to tax-deductible RMF and Thai ESG funds. Compare TER and trading costs separately.
Many investors use both depending on their specific goals and accounts
Always compare the Total Expense Ratio before choosing between products

Frequently Asked Questions

Are index funds and ETFs the same thing?

They share the same investment philosophy — tracking an index rather than actively selecting investments. But they differ in how they are purchased, priced, and traded. An ETF is always listed on an exchange — an index fund is not.

Which has lower fees — index funds or ETFs?

In Thailand, the annual fees (TER) of comparable index funds and SET-listed ETFs can differ by only a fraction of a percentage point, with ETFs sometimes slightly cheaper. ETFs, however, add a broker commission on every purchase and sale, while index funds may charge sales or redemption fees. For small, regular purchases, trading costs can outweigh a small TER difference, so compare both.

Can I hold both index funds and ETFs in the same portfolio?

Yes. Many investors combine Thai funds, for example tax-deductible RMF or Thai ESG funds, with internationally diversified investments. Before investing abroad, check the Thai tax rules on foreign income (see tax note).