Introduction
Exchange-Traded Funds (ETFs) have transformed the investment landscape in India, offering a blend of diversification, affordability, and ease of trading. As of 2025, the ETF market in India is thriving, driven by increasing investor awareness and a growing range of options. Whether you’re a beginner or a seasoned investor, understanding how to start investing in ETFs in India can help you build wealth efficiently.
Table of Contents
What Are ETFs and Why Are They Popular?
Understanding ETFs
ETFs are investment funds listed on stock exchanges like the NSE or BSE, designed to track the performance of a specific index, sector, commodity, or asset class. For instance, an ETF tracking the Nifty 50 mirrors the performance of the 50 largest companies in India. Unlike mutual funds, which are priced once daily, ETFs can be traded throughout the day at market prices, offering flexibility.
Why ETFs Are Popular in India
ETFs have gained traction in India for several reasons:
- Diversification: ETFs provide exposure to a basket of assets, reducing the risk of investing in a single stock.
- Low Costs: ETFs typically have lower expense ratios than actively managed mutual funds. For example, the SBI – ETF Nifty 50 has an expense ratio of just 0.04%.
- Transparency: ETFs disclose their holdings daily, ensuring investors know exactly what they own.
- Liquidity: ETFs can be bought or sold during market hours, offering high liquidity.
- Tax Efficiency: Lower turnover in ETFs results in fewer capital gains distributions, potentially reducing tax liabilities.
In 2025, the ETF market in India is on track to grow significantly, with global ETF assets projected to surpass $300 billion. This growth reflects the increasing trust in ETFs among Indian investors.
How ETFs Work in India
ETFs are created by Asset Management Companies (AMCs) that pool investor money to build a portfolio mirroring a specific index or asset class. These portfolios are divided into units listed on stock exchanges, allowing investors to trade them like stocks. The Net Asset Value (NAV) of an ETF is calculated daily, reflecting the value of its underlying assets.
ETFs are passively managed, meaning they aim to replicate the performance of their benchmark rather than outperform it. This passive approach keeps costs low and aligns returns closely with the market or sector they track.
Benefits of Investing in ETFs in India
Investing in ETFs offers several advantages, making them a compelling choice for Indian investors:
- Diversification Across Sectors: ETFs allow you to invest in a broad market or specific sector with one purchase. For example, a Nifty 50 ETF gives exposure to 50 companies across 22 sectors.
- Cost Efficiency: With expense ratios as low as 0.04% (e.g., SBI – ETF Nifty 50), ETFs are significantly cheaper than actively managed funds.
- Transparency: Daily disclosure of holdings ensures you know what’s in your portfolio.
- Liquidity: ETFs can be traded throughout the day, making it easy to enter or exit positions.
- Tax Efficiency: Lower turnover reduces capital gains distributions, potentially lowering tax liabilities.
- Access to Small-Cap Stocks: ETFs like small-cap ETFs provide exposure to high-growth potential stocks without the need to pick individual companies.
These benefits make ETFs an attractive option for those looking to start investing in ETFs in India.
Types of ETFs Available in India
India offers a variety of ETFs to suit different investment goals. Here are the main types:
| Type | Description | Examples |
|---|---|---|
| Equity ETFs | Track stock market indices like Nifty 50 or Sensex. Ideal for broad market exposure. | SBI – ETF Nifty 50, UTI – S&P BSE Sensex ETF |
| Debt ETFs | Invest in fixed-income securities like government bonds. Suitable for conservative investors. | ICICI Prudential Bond Fund ETF |
| Gold ETFs | Track the price of gold, backed by physical gold. A convenient way to invest in gold. | HDFC Gold ETF |
| Sectoral ETFs | Focus on specific sectors like banking or IT. Ideal for targeted investments. | Nippon India ETF Nifty Bank BeES |
| International ETFs | Provide exposure to foreign markets like the US or emerging markets. | Motilal Oswal NASDAQ 100 ETF |
| Thematic ETFs | Focus on themes like infrastructure or sustainability. | ICICI Prudential Bharat 22 ETF |
Each type caters to different risk profiles and investment horizons, making it essential to choose one that aligns with your goals when learning how to start investing in ETFs in India.
Steps to Start Investing in ETFs in India
Starting your ETF investment journey is straightforward. Follow these steps:
- Open a Demat and Trading Account:
- Choose a Broker:
- Select a SEBI-registered broker with low brokerage fees and access to a wide range of ETFs. Compare platforms for user-friendliness and research tools.
- Research and Select the Right ETF:
- Use tools like Tickertape Stock Screener to filter ETFs based on expense ratio, tracking error, and liquidity.
- Consider your investment goals (e.g., long-term growth, income, or sector-specific exposure) and risk tolerance.
- Place Buy/Sell Orders:
- Log in to your broker’s platform and place a buy order for the ETF you’ve chosen. You can also set up Systematic Investment Plans (SIPs) for regular investments.
- ETFs are traded during market hours (9:15 AM to 3:30 PM IST).
- Monitor and Rebalance Your Portfolio:
- Regularly review your ETF holdings to ensure they align with your financial goals. Use tools like Tickertape Portfolio to track performance.
By following these steps, you can confidently start investing in ETFs in India.
Key Considerations Before Investing in ETFs
Before you dive into ETFs, consider these factors to make informed decisions:
- Expense Ratio: Opt for ETFs with low expense ratios to maximize returns. For example, the SBI – ETF Nifty 50 has an expense ratio of 0.04%.
- Tracking Error: This measures how closely an ETF tracks its index. SEBI mandates a tracking error of less than 2%. Check this metric to ensure performance alignment.
- Liquidity: Ensure the ETF has high trading volume and tight bid-ask spreads to avoid price impacts when buying or selling.
- Tax Implications:
- Equity ETFs held for over 12 months attract a 10% long-term capital gains tax (LTCG).
- Debt and international ETFs are taxed as short-term capital gains at slab rates under Section 50AA (post-April 2023).
- Risk Factors: Equity ETFs are subject to market volatility, while debt ETFs carry interest rate risk. Assess the risks of the underlying assets.
Consulting a financial advisor can help you navigate these considerations when starting to invest in ETFs in India.
Top ETFs to Invest in India in 2025
Based on performance, popularity, and market trends in 2025, here are some of the best ETFs to consider:
| ETF Name | Index Tracked | Expense Ratio | AUM (as of Jan 2025) | 5-Year Returns |
|---|---|---|---|---|
| SBI – ETF Nifty 50 | Nifty 50 | 0.04% | ₹2,12,886 crore | 15.6% |
| UTI – S&P BSE Sensex ETF | Sensex | 0.05% | ₹47,976 crore | N/A |
| Nippon India ETF Nifty Bank BeES | Nifty Bank | 0.05% | N/A | N/A |
| Motilal Oswal NASDAQ 100 ETF | NASDAQ 100 | N/A | N/A | N/A |
| ICICI Prudential Bharat 22 ETF | Bharat 22 | N/A | N/A | N/A |
These ETFs offer a mix of broad market exposure, sector-specific growth, and international diversification. For detailed performance data, visit Tickertape or Samco.
Case Studies: Success Stories with ETFs
To illustrate the potential of ETFs, here are some examples:
- Long-Term Wealth Creation:
- An investor who invested ₹1 lakh in the SBI – ETF Nifty 50 five years ago would have seen their investment grow by 15.6% annually, showcasing the power of compounding in broad-market ETFs.
- Sectoral Growth:
- Investors in the Nippon India ETF Nifty Bank BeES have benefited from the banking sector’s strong performance, which has outperformed the broader market in recent years.
- International Exposure:
- The Motilal Oswal NASDAQ 100 ETF has allowed Indian investors to capitalize on the growth of US tech giants like Apple and Microsoft, diversifying their portfolios globally.
These examples highlight how to start investing in ETFs in India can lead to significant returns when aligned with market trends and personal goals.
Tax Implications of ETFs in India
Understanding the tax treatment of ETFs is crucial:
- Equity ETFs:
- Held for more than 12 months: 10% LTCG tax on gains exceeding ₹1 lakh.
- Held for less than 12 months: 15% short-term capital gains tax (STCG).
- Debt and International ETFs:
- Post-April 2023, taxed as STCG at slab rates under Section 50AA, regardless of holding period.
- Gold ETFs:
- Taxed similarly to debt ETFs, with gains taxed at slab rates.
The Union Budget 2024-2025 introduced changes, aligning ETF taxation with other investments. ETFs in the International Financial Services Centre (IFSC) like GIFT City may enjoy tax exemptions, making them attractive for certain investors.
Risks of Investing in ETFs
While ETFs are generally considered safe due to diversification, they carry risks:
- Market Risk: Equity ETFs are subject to stock market volatility.
- Interest Rate Risk: Debt ETFs may lose value if interest rates rise.
- Liquidity Risk: Low trading volume in some ETFs can lead to wider bid-ask spreads.
- Tracking Error: An ETF may not perfectly replicate its index due to fees or market conditions.
To mitigate these risks, diversify across ETF types and regularly review your portfolio.
How to Choose the Right ETF
When selecting an ETF, consider:
- Investment Goals: Are you seeking growth, income, or diversification?
- Risk Tolerance: Equity ETFs are riskier than debt ETFs.
- Expense Ratio: Lower is better to maximize returns.
- Tracking Error: Choose ETFs with low tracking errors.
- Liquidity: Opt for ETFs with high trading volumes.
Tools like Tickertape Stock Screener can help you compare ETFs based on these criteria.
FAQs
What is an ETF?
An ETF is a fund traded on stock exchanges that tracks an index, sector, or commodity, offering diversification and low costs.
How are ETFs different from mutual funds?
ETFs are traded like stocks, offer intraday trading, and typically have lower expense ratios than mutual funds.
Can I invest in international ETFs from India?
Yes, ETFs like the Motilal Oswal NASDAQ 100 ETF provide exposure to global markets.
What is the minimum investment required for ETFs?
Many ETFs allow investments starting with one unit, which can cost as little as a few hundred rupees.
Are ETFs safe to invest in?
ETFs are generally safe due to diversification, but they carry risks like market volatility. Always assess your risk tolerance
How do I track my ETF investments
Use platforms like Tickertape or your broker’s app to monitor performance and rebalance your portfolio.
Can I set up an SIP in ETFs?
Yes, some brokers allow SIPs in ETFs, enabling regular investments.
What are the tax benefits of ETFs?
Equity ETFs held over 12 months qualify for a 10% LTCG tax, while low turnover reduces taxable events.
Conclusion: Start Your ETF Journey Today
Learning how to start investing in ETFs in India is a smart move for anyone looking to build wealth with minimal hassle. ETFs offer diversification, low costs, and flexibility, making them suitable for investors of all levels. By following the steps outlined—opening a demat account, choosing a broker, researching ETFs, and monitoring your portfolio—you can confidently begin your investment journey.
As the ETF market in India continues to grow in 2025, now is an excellent time to explore this investment avenue. Always consult a financial advisor to tailor your ETF investments to your financial goals. With the right strategy, ETFs can be a powerful tool to achieve long-term financial success.
Disclaimer: Moneyjack.in provides general financial information for educational purposes only. We are not financial advisors. Content is not personalized advice. Consult a qualified professional before making financial decisions. We are not liable for any losses or damages arising from the use of our content. Always conduct your own research.