ETF vs index fund: which to choose for the same index?
Compare the result of investing in an ETF versus an index fund that track the same index, based on each one's cost (TER).
Results
Difference between the two funds
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Final value with the ETF
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Final value with the index fund
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Total cost in fees (fund 1)
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Total cost in fees (fund 2)
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Final value = initial capital × (1 + r)^n + monthly contribution × [(1 + r)^n − 1] / r, where r is the net monthly return (gross return minus the fund's annual fee) and n is the number of months. The cost in fees is the difference between the fee-free final value and each fund's actual final value.
Year-by-year comparison
| Year | ETF | Index fund | Difference |
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When should you use this calculator?
An ETF and an index fund can track exactly the same index (say, the MSCI World or the S&P 500) with an identical strategy; what differs between them isn't the strategy but the vehicle: how you buy them, how they're taxed, and how much they cost to hold. The fields are pre-filled with an example (€1,000 initial + €200/month, 25 years, 7% gross annual return, TER 0.15% for the ETF and 0.30% for the index fund, a typical cost gap between the two vehicles for the same index); adjust the real TER of the products you're comparing.
Practical example
With those figures, the ETF would end up with €163,736.40 versus €159,844.65 for the index fund: a €3,891.76 difference in favor of the ETF, explained purely by the 0.15 percentage-point lower TER over 25 years. This cost gap tends to be small compared with the gap against an actively managed fund (where TER can be 1-2 points higher), but it isn't negligible long-term.
Legal and tax context
The cost gap (TER) isn't the only factor to weigh. In Spain, mutual funds (including index funds) have a tax advantage ETFs don't: switching between funds isn't a taxable event, while selling an ETF to buy another one immediately triggers a capital gain or loss subject to income tax. This tax advantage is specific to Spain and doesn't exist in every country; check the rules where you're a tax resident before deciding.
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Frequently asked questions
Why compare the same index across two different vehicles?
Because the underlying index's gross return is identical in both cases; the difference in final result comes purely from cost (TER) and, in Spain, from the tax treatment of fund switches, not from different money management.
Does an ETF always have a lower TER than the equivalent index fund?
Not always, but it's common for the ETF to have a somewhat lower TER. Always compare the real TER of the specific products you're evaluating, not a generic average.
Why doesn't this calculator model the tax advantage of fund switches?
Because it depends on how many times you'd switch funds and your marginal savings tax rate — very personal variables that would create a false sense of precision if estimated generically. It's explained in the text instead of forcing a number.