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 Passive Investment or index investing is an investing strategy that tracks an index or a portfolio created based on pre-defined set of rules. The idea is to avoid the adverse consequences of failing to correctly anticipate the future. There is sharp contrast between the behavior of passive and active investment. Passive investors don’t try to pick stocks, times, managers, or styles. Instead, they buy and hold diversified index based passively managed portfolios and enjoy risk adjusted market returns known as beta – β. The term “passive” translates into less trading of the fund’s portfolio, more favorable tax consequences, and lower fees and expenses than actively managed funds. 

Both are: 

1. Regulated by SEBI
2. Open Ended Mutual Fund Schemes
3. Less costly than active funds
4. Taxed like mutual funds as per underlying portfolio of equity or debt. 

Index Funds are: 

1. Passively Managed
2. Can be bought/sold only through AMC
3. Do not require DEMAT account
4. Less cost efficient than ETFs.

In general ETF's can be bought either through AMC or a DEMAT account and are can be hold only in DEMAT account. This gives them real time value and makes is more cost efficient that Index Funds.   

 Index funds and exchange-traded funds (ETFs) are both investment options that bundle stocks, bonds, or securities into a single investment. Both are low-cost ways to diversify and potentially generate strong long-term returns. However, they differ in trading, minimum investment, and tax efficiency:

1. Trading: ETFs trade throughout the day like stocks, while index funds can only be purchased and sold at the end of the trading day. 

2.  Minimum investment: ETFs often have lower minimum investments than index funds.

3.  Tax efficiency: ETFs may be more tax-efficient than index funds. 

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1. Choosing the right fund takes into consideration various aspects. 
2. Goals.
3. Risk Tolerance
4. Right Fund
5. Fund Performance
6. Fund Manager and Track record
7. Liquidity needs
8. Tax Implication

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