IMO, major difference in the liquidity. ETF can be traded at the auction price given by market at any moment (very similar to stock), whereas in case of mf, there is only one settlement price for the day which is NAV. And in all case, we don't know what will be NAV at the end of the day.
Yes, ETF are passively managed fund that tracks the benchmark. But when almost 85% of the funds are underperforming the benchmark, then why to goto mf manager and pay additional charges.
As etf industry matures, we will looking for etf that can go short on index, can perform 2x, 3x time (leveraged etfs) the indices. As investors get more knowledgable and don't depend on agents recommendation, we will start seeing the change. Ofcourse western market is few years ahead of us, but it is coming to india too.
Happy ETF Trading.