Final Up to date on Oct 8, 2025 by Harshit Singh
Alternate-Traded Funds, or ETFs, are funding merchandise that mix the options of mutual funds and shares. Like a mutual fund, they characterize a basket of securities; like a inventory, they’re traded on exchanges in actual time.
India’s ETF market started in 2001, and over time, ETFs have steadily moved from area of interest merchandise to extensively used funding automobiles. Knowledge from the Affiliation of Mutual Funds in India (AMFI) exhibits that passive funds had property underneath administration of Rs. 12.48 lakh crore in July 2025, an increase of 14% year-on-year and 118% during the last three months. Passive funds now make up round 17% of the overall mutual fund trade AUM.
Supply: AMFI, Crisil Intelligence
This speedy progress displays a maturing investor base searching for diversified, cost-effective investments.
Understanding ETFs within the Indian Context
What precisely is an ETF?
As talked about, an ETF combines the options of shares and mutual funds. This implies with one ETF, you get publicity to a variety of asset lessons, together with equities, debt, commodities, and a number of securities directly, making investing less complicated for a newcomer.
How ETFs Differ from Mutual Funds
Whereas ETFs and mutual funds each provide a method to put money into a diversified basket of securities, they’ve a number of basic variations. The first distinction lies in how they’re traded and priced. Let’s check out a complete comparability of each.
| Facet | ETFs | Mutual Funds |
| Buying and selling & Pricing | Traded on inventory exchanges all through the day like shares. Worth modifications in actual time. | Traded on inventory exchanges all through the day like shares. Worth modifications in actual time. |
| Demat Requirement | Require a demat and buying and selling account to speculate. | Will be bought immediately from AMCs or distributors. No demat account wanted. |
| Unit Construction | Items linked to benchmark values (e.g., 1/a hundredth of Nifty 50 ETF). Gives an specific, tangible reference for the ETF’s worth throughout buying and selling hours. | Worth proven by every day NAV with out such benchmark linkage. |
| Price & Transparency | ETFs have decrease expense ratios | Mutual funds have greater administration charges. |
Buying and selling and Pricing: ETFs are traded on inventory exchanges all through the day, identical to particular person shares. Their worth is set by real-time provide and demand available in the market. In distinction, mutual fund items are bought or redeemed on the Internet Asset Worth (NAV), which is calculated solely as soon as on the finish of every buying and selling day based mostly on the closing costs of the underlying property.
Account Necessities: To put money into ETFs, you will need to have a demat and buying and selling account, as they’re purchased and bought on the inventory change. Mutual funds can usually be bought immediately from the Asset Administration Firm (AMC) or by numerous distributor platforms with out requiring a demat account.
Unit Construction: A mutual fund’s worth is represented by its every day NAV. An ETF unit, nonetheless, is commonly designed to characterize a selected, measurable fraction of its underlying benchmark. For example, a Nifty 50 ETF unit is perhaps structured to be roughly 1/a hundredth of the Nifty 50 index worth, or a Gold ETF unit might be equal to 1 gram of gold. This direct linkage offers a transparent, tangible reference for the ETF’s worth throughout buying and selling hours.
Price and Transparency: ETFs, being passively managed, typically have decrease expense ratios in comparison with actively managed mutual funds. Moreover, the portfolio holdings of an ETF are disclosed every day, providing a better diploma of transparency than mutual funds, which generally report their portfolios on a month-to-month or quarterly foundation.
Sorts of ETFs in India
When discussing Alternate-Traded Funds, not each kind of ETF is at present obtainable in India. Whereas the worldwide ETF universe spans a variety of asset lessons and techniques, the Indian market remains to be evolving.
Index Fairness ETFs: These monitor broad market indices or particular segments. For instance, say a Nifty 50 ETF holds the 50 largest Indian firms within the Nifty index, giving prompt publicity to the general market. There are additionally sectoral ETFs specializing in sectors like banking or expertise to focus on particular industries.
Commodity ETFs: Gold ETFs are fairly standard in India, permitting you to put money into gold with out holding bodily gold. There are additionally newer commodity ETFs (like Silver, Copper, Aluminium ETFs) for diversifying into valuable metals. Gold ETFs have been used as a hedge in opposition to inflation and noticed surging curiosity throughout previous market crises.
Worldwide ETFs: These ETFs allow world publicity by monitoring international indices. For example, Indian buyers should buy ETFs that monitor the Nasdaq-100 or S&P 500, gaining publicity to US markets by their common demat account.
Debt ETFs: Debt and bond ETFs (such because the Bharat Bond ETFs) enable buyers to put money into fixed-income securities. These monitor indexes of presidency bonds or company bond portfolios, offering a steady revenue funding choice with the pliability of buying and selling on the change.
At this time, there are over 250 ETF schemes monitoring dozens of various indices. The market has come a good distance from a single product in 2001. Regulatory initiatives by SEBI have additional fuelled the expansion in ETF listings and property.
Disclaimer: The above ETF examples are supposed solely for instructional functions, providing conceptual readability to buyers based mostly on the knowledge offered.
The way to Put money into ETFs?
Investing in ETFs is a course of just like buying and selling particular person shares, as they’re listed and traded on inventory exchanges. To start, an investor is required to have a demat account and a buying and selling account, which could be opened by a registered stockbroker. As soon as these accounts are arrange, you should buy or promote ETF items by your dealer’s buying and selling platform throughout market hours. The value of an ETF fluctuates all through the buying and selling day based mostly on provide and demand, permitting you to buy items at real-time market costs, simply as you’ll with an organization’s shares.
Key Advantages of Investing in ETFs
Diversification Made Easy: One of many greatest benefits of ETFs is prompt diversification. By buying one ETF, you get publicity to a basket of shares or property, somewhat than placing all of your cash into one firm. For instance, shopping for a Nifty 50 index ETF successfully makes you a part-owner of all 50 firms within the Nifty 50 index.
Price-effectiveness: ETFs are recognized for his or her low price, which is a key purpose they’re gaining reputation. As a result of they’re passively managed (simply monitoring an index with out energetic stock-picking), their expense ratios are typically a lot decrease than these of standard mutual funds.
Liquidity & Flexibility: One other perk of ETFs is the pliability they provide in buying and selling. Not like conventional mutual funds, which might solely be purchased or bought on the end-of-day internet asset worth (NAV), ETFs commerce reside on the inventory change all through the buying and selling day. You should purchase or promote ETF items at market costs anytime throughout market hours, identical to shares of an organization.
Transparency & Simplicity: Since an ETF usually tracks a recognized index or asset, you all the time know what you’re investing in. The indicative NAVs can be found in actual time to an investor, and so is the basket of securities that includes the portfolio. In case you purchase a Sensex ETF, you could be positive it holds the 30 Sensex shares in the identical proportions because the index.
Number of Selections: ETFs include loads of selections to fit your funding objectives. You will discover ETFs overlaying practically each main asset class and technique, starting from broad fairness publicity to a selected sector. Searching for a secure asset or inflation hedge? Gold and Silver ETFs can be found so as to add commodities to your portfolio.
Accessibility & International Publicity: By Indian ETFs, you possibly can acquire publicity to world markets and various property with ease. For instance, a number of Indian fund homes provide worldwide ETFs or Fund-of-Fund ETF schemes that monitor US indices just like the Nasdaq-100 or S&P 500. By buying these on the NSE/BSE, an Indian investor successfully buys a slice of the US tech or broader market, without having any abroad account or sophisticated foreign exchange transactions.
Challenges & Concerns for Indian Buyers
Whereas ETFs provide many advantages, it’s additionally essential to pay attention to just a few challenges and issues, particularly within the Indian context:
Liquidity Considerations: Not all ETFs in India are extremely traded. Some area of interest or new ETFs see low buying and selling volumes, which can lead to a much bigger bid-ask unfold (the distinction between purchase and promote worth). Low liquidity would possibly make it barely more durable to purchase/promote massive portions at a good worth. That mentioned, liquidity is enhancing as retail participation grows, and the preferred ETFs (like Nifty/Sensex ETFs or Gold ETFs) typically have ample quantity.
Monitoring Error: ETFs purpose to copy an index, however in observe, there generally is a small distinction between the ETF’s returns and the index’s returns. This distinction, referred to as monitoring error, arises on account of fund bills, money holdings, and execution lags. It’s clever to examine an ETF’s monitoring report.
How are ETFs Taxed in India?
In India, the taxation of Alternate-Traded Funds (ETFs) relies upon totally on the underlying asset they monitor.
Taxation is primarily utilized in two methods:
Capital Good points: Revenue from promoting ETF items.
Dividends: Earnings distributed by the ETF.
Right here’s an in depth breakdown of how various kinds of ETFs are taxed as of Monetary Yr 2025-26:
Fairness ETFs
An ETF is assessed as an “Fairness ETF” if it invests at the least 90% of its corpus in listed Indian equities. They’re taxed equally to fairness shares.
• As per Part 112A of the Earnings Tax Act, long-term capital good points exceeding Rs 1.25 lakh earlier than 23 July 2024 might be taxed at 10%, whereas these bought on or after 23 July 2024 might be charged on the fee of 12.5% with out indexation.
• As per Part 111A of the Earnings Tax Act, short-term capital good points tax might be relevant on the fee of 15% on the sale of property executed earlier than 23 July 2024 and 20% on these bought on or after 23 July 2024.
The above tax construction stays the identical for gold, debt, and different ETFs.
Indexation is a key profit right here. It adjusts the acquisition worth of your funding for inflation, which successfully reduces your taxable acquire.
Dividend Taxation
If an ETF pays out dividends, this revenue is added to your whole taxable revenue and taxed in keeping with your revenue tax slab fee. In case your whole dividend revenue from a single fund home exceeds ₹5,000 in a monetary 12 months, a ten% Tax Deducted at Supply (TDS) is relevant.
Disclaimer: The above data is meant solely for instructional functions. Please seek the advice of your monetary advisor earlier than investing.
To Wrap Up
ETFs have really modified the funding panorama in India by making investing less complicated, cheaper, and extra accessible. For freshmen, ETFs provide a pleasant entry into the markets. You can begin with even a single unit and get a diversified portfolio.
To sum up, ETFs in India provide diversification made simple, price financial savings, liquidity, transparency, and a world of funding choices. Whether or not you’re simply beginning to make investments or trying to refine your technique, exploring ETFs might be a method to put money into your monetary future.
Disclaimers:
An Investor training and consciousness initiative by Zerodha Mutual Fund.
Know Your Buyer: To put money into the schemes of Mutual Fund (MF), an investor must be compliant with the KYC (Know Your Buyer) norms and the process is -> Fill the Frequent KYC (CKYC) software kind by referring to the directions given under:
Enclose self-certified copies of each proof of id and handle. For Proof of Identification, submit anybody doc – PAN/ passport / voter ID/ driving license/ Aadhaar / NREGA job card/ every other doc notified by central authorities. Proof of handle, submit anybody doc which is identical because the proof of id, apart from PAN (since this doc doesn’t specify the handle). In case your everlasting handle is totally different from the correspondence handle, then it’s worthwhile to submit proof for each the addresses. Paperwork Attestation – By anybody from the approved officers as talked about underneath directions printed on the CKYC software kind. PAN Exempt Investor Class (PEKRN) – Refers to investments (together with SIPs) in MF schemes as much as INR 50,000/- per investor per 12 months per Mutual Fund. This set of buyers must submit alternate proof of id in lieu of PAN. In Individual Verification (IPV) – It is a obligatory requirement and could be executed by the listing of officers talked about within the directions printed overleaf on the CKYC software kind. Please submit the finished CKYC software kind together with supporting paperwork at any of the purpose of acceptance like places of work of the Mutual Fund/ Registrar, and so forth.
Buyers might also full their KYC on-line by Aadhar OTP-based authentication. Go to the respective fund home web site or contact their buyer care to know extra in regards to the course of.
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Different Disclaimer: The Content material of this text/doc is for instructional and informational functions solely and shouldn’t be construed as monetary recommendation. Please seek the advice of your monetary advisor for recommendation suited to your particular circumstances.
Investing in mutual funds and different monetary merchandise includes danger, together with the potential lack of principal. Previous efficiency is just not indicative of future outcomes. Earlier than making any funding choices, buyers ought to conduct their very own analysis and search recommendation from certified monetary advisors to make sure that the respective merchandise and techniques are appropriate for his or her particular monetary state of affairs and targets.
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