The financial market is constantly changing, so finding smart ways to grow your money is crucial. You may have heard people discussing exchange traded funds (ETFs) when it comes to investing. It can feel overwhelming initially, but it is a simple concept.
In this blog, we will explain what exchange traded funds are, their types, benefits, limitations, and taxation in India. We also cover the best and top-performing ETFs and provide guidance on how to get started investing in them.
Table of Contents
What are Exchange Traded Funds (ETFs)?
An Exchange Traded Fund (ETF) is a type of investment fund that functions like a mutual fund but trades like a stock. They offer benefits such as lower fees, improved tax efficiency, and the flexibility to trade at any time during the day. ETFs can be an efficient option for investors seeking to generate wealth without the need for constant market monitoring.
In India, ETFs track market indices such as the Nifty 50, Nifty 100, and BSE Sensex. Most ETFs are passively managed to track an index, though actively managed ETFs also exist. These aim to outperform benchmarks using a manager’s judgment, but generally come with higher fees.
ETFs have significantly grown in India. As of March 2025, they managed ₹8.39 lakh crore, 13% of all mutual fund assets, up from 7% in March 2020. By May 2025, ETF assets closed ₹9 lakh crore across about 260 schemes. Retail participation increased from 23 lakh investors in 2020 to 2.63 crore in 2025, with retail investments rising to over ₹17,800 crore in the same period.
Different Types of ETFs in India
Below are the main types of ETFs available in India:
1. Equity ETFs
Equity ETFs put money into a basket of company stocks, also known as shares. These funds track the performance of the wider market or a sectoral equity index such as Nifty Bank, Sensex, Nifty 50, etc. It combines the flexibility of stock investment and the simplicity of equity mutual funds and can be considered by investors aiming for long-term wealth creation through ETF investment.
Examples of some Equity ETFs are Edelweiss Exchange Traded Scheme – NIFTY, ICICI Prudential NIFTY ETF, UTI Sensex ETF, etc.
2. Commodity ETFs
Commodity ETFs invest in commodities or several different commodities, such as oils, coffee, precious metals, livestock, etc.
Examples of some Commodity ETFs are Nippon Gold ETF, HDFC Gold ETF, ICICI Pru Silver ETF, etc.
3. Debt ETFs
These are also known as fixed-income ETFs, generally following an index, such as the Nifty or Government Bond Index, and invest in the same bonds in the same proportions as the index. These funds provide exposure to fixed-income securities for investors who need cost efficiency, diversification, and stability.
Examples of some Debt ETFs in India are: Nippon India ETF Nifty 1D Rate Liquid BeES, DSP NIFTY 1D Rate Liquid ETF, and Bharat Bond ETFs.
4. International ETFs
If an investor wants to invest in a foreign market through an ETF, international ETFs are the best option. These are simple investment products that give Indian investors exposure to international indices. They can hold a mix of assets, including equity, commodities, bonds, and trades on the stock exchange, just like stocks.
Examples of Global ETFs are Motilal Oswal Nasdaq 100 ETF, Mirae Asset NYSE FANG+ ETF, Nippon Hang Seng ETF, etc.
5. Smart Beta ETFs
Smart Beta ETFs are funds that use alternative weighting methods to create portfolios, compared to the traditional cap-weighted indexes. They adjust the portfolio mix based on factors such as value, size, volatility, and momentum.
Examples of Smart Beta funds are ICICI Prudential Nifty Low Vol 30 ETF and Nippon India ETF NV20.
6. Leveraged and Inverse ETFs
Leveraged and Inverse ETFs focus on boosting the returns of an underlying index or providing opposite returns to the index’s performance, used for short-term trading. Combining both offers traders useful investment possibilities to maximise short-term gains and market trends.
Steps to Invest in an ETF
Here are the steps on how to invest in an ETF:
Zerodha, Groww, and Upstox are some of the platforms you can go for when opening an account.
Step 2: Sign Up For a Demat Account
Before proceeding to invest in ETFs, you need to have a demat account. You will be required to complete KYC. The platform’s interface and services might be new for you, so familiarise yourself first with it.
Step 3: Explore Your Options
Check different ETF options on your demat account that are suitable for your financial objectives and investment timeframe. Check factors like ETFs’ expense ratios, underlying assets, and liquidity, and choose the one that meets your needs.
Here is an example:
| ETF Name | Underlying Assets | 1 Year Return | Expense Ratio | Tracking Error |
| SBI Nifty ETF | Nifty 50 Index | 15.8% | 0.17% | 0.11% |
| Bharat Bond ETF | Government bonds | 8% | 0.12% | 0.21% |
SBI Nifty ETF might be a better choice if your priority is higher returns, but for lower expenses, Bharat Bond ETF is preferred.
Step 4: Enter Your Order
Log in to the trading account and visit the order placement section, and enter the name of the ETF you want to purchase.
Step 5: Quantity and Price
The number of ETF units you want to buy, mention it in the order entry form. You can use a limit order and set the desired price per unit, too. Verify the order details to ensure that they match your investment criteria.
Step 6: Track and Adjust
Once the order is placed, you can monitor your investment status through your trading account. Track price changes and market news that may affect your investment. Furthermore, regularly check your investment portfolio.
Difference Between ETFs, Mutual Funds, and Stocks
Individuals often wonder which is better: an ETF, a mutual fund, or a stock. Each has its pros and cons, so let’s look at the key differences.
| Point of Distinction |
Exchange Traded Fund (ETF) |
Mutual Fund |
Stocks |
| Trading |
Trades on a stock exchange during market hours, and prices fluctuate throughout the day. |
Trades once per day, at the Net Asset Value (NAV) calculated after market close. |
Trades throughout the day at market prices, just like ETFs. |
| Minimum Investment |
No fixed minimum after the cost of one share plus brokerage fees. For example, if an ETF is ₹500, you can buy it with ₹500 + fees. |
Typically requires a minimum investment of ₹100, ₹500, or more. |
No minimum except the cost of a single share. |
| Investment Approach |
These are generally passive, tracking an index for lower cost and higher transparency. |
Often active, with fund managers picking investments based on research and strategy. |
These are active in nature. You decide which stocks to buy and when to sell. |
| Taxation of Gains |
a. Equity ETFs (≥65% equity): STCG (≤12 months): 20% and LTCG (>12 months): 12.5% on gains above ₹1.25 lakh (no indexation)
b. Debt/Gold/International ETFs: taxed as per slab or 12.5% if bought before Mar 31, 2023 and held long term.
|
a. Equity mutual funds (same as ETFs): STCG (≤12 months): 20% and LTCG (>12 months): 12.5% on gains above ₹1.25 lakh (no indexation)
b. Debt mutual funds (post April 1, 2023): taxed at slab rate (no indexation).
|
a. Equity shares: STCG (≤12 months): 20% and LTCG (>12 months): 12.5% on gains above ₹1.25 lakh (no indexation).
|
Best ETFs in India in 2025
Here is the list of the best ETFs in India in 2025:
| ETF Name |
Asset Under Management (AUM) |
Sub-Sector |
| CPSE ETF |
₹32,051.91 Cr. |
Equity |
| UTI S&P BSE Sensex ETF |
₹49,128.16 Cr. |
Equity |
| Bharat 22 ETF |
₹15,685.91 Cr. |
Equity |
| Nippon India ETF Nifty Bank BeES |
₹7,290.87 Cr. |
Equity |
| Kotak Nifty Bank ETF |
₹4,970.14 Cr. |
Equity |
| SBI Nifty 50 ETF |
₹1,99,920.61 Cr. |
Equity |
| BHARAT Bond ETF-April 2023-Growth |
₹6,733.96 Cr. |
Debt |
| BHARAT Bond ETF-April 2030-Growth |
₹25,406.32 Cr. |
Debt |
| BHARAT Bond ETF-April 2032 |
₹10,591.10 Cr. |
Debt |
| Nippon India ETF Gold BeES |
₹23,832.48 Cr. |
Gold |
These ETFs delivered the highest returns in 2025, making them ideal for investors seeking performance-focused returns.
| Rank |
ETF Name |
1-Year Return (%) |
2-Year Return (%) |
3-Year Return (%) |
Expense Ratio (%) |
| 1 |
Mirae Asset NYSE FANG+ ETF (MAFANG) |
50.05 |
52.4 |
53.79 |
0.65 |
| 2 |
CPSE ETF |
-8.85 |
31.35 |
38.52 |
0.07 |
| 3 |
Motilal Oswal SP BSE Enhanced Value ETF |
-4.43 |
27.59 |
38.1 |
0.31 |
| 4 |
Kotak Nifty PSU Bank ETF |
7.87 |
18.71 |
36.67 |
0.49 |
| 5 |
Nippon India ETF Nifty PSU Bank BeES |
7.87 |
18.73 |
36.65 |
0.49 |
| 6 |
ICICI Prudential Silver ETF |
50.07 |
37.59 |
34.26 |
0.40 |
| 7 |
Aditya Birla Sun Life Silver ETF |
55.74 |
40.25 |
35.9 |
0.35 |
| 8 |
HDFC Silver ETF |
54.35 |
40.62 |
35.81 |
0.45 |
| 9 |
NIPPON India Silver ETF |
55.24 |
39.85 |
35.55 |
0.56 |
| 10 |
DSP Silver ETF |
55.52 |
40.01 |
35.57 |
0.40 |
Note: This performance is based on the returns of the underlying Mutual Fund.
How are ETFs Taxed in India?
The latest tax structure for exchange traded funds (ETFs) in India depends on the type of ETF (equity, gold, debt, or international), the holding period, and recent changes announced in the Union Budget 2024 and Finance Bill 2025.
ETF tax rules for 2025-26
| ETF Type |
Holding Period |
Investment Date |
Tax Rate & Rules |
Equity ETFs
(Invests ≥65% in Indian equities) |
Short-Term (< 12 months) |
Any period |
20% flat rate, plus applicable surcharge & cess. This rate is effective from July 23, 2024.
|
| Long-Term (> 12 months) |
Any period |
12.5% on gains exceeding ₹1.25 lakh, with no indexation benefit. The LTCG exemption limit increased to ₹1.25 lakh from ₹1 lakh, effective for sales on or after July 23, 2024.
|
Debt ETFs
(< 35% Indian equities) |
Any period |
On or after Apr 1, 2023 |
Taxed at your individual income tax slab rate, with no indexation benefit.
|
| Short-Term (≤ 24 months) |
On or before Mar 31, 2023, sold on or after July 23, 2024 |
Taxed at your individual income tax slab rate.
|
| Long-Term (> 24 months) |
On or before Mar 31, 2023, sold on or after July 23, 2024 |
12.5%, without indexation benefit. The holding period for LTCG was reduced from 36 months to 24 months.
|
| Gold & Silver ETFs |
Short-Term (< 12 months) |
On or after Apr 1, 2025 |
Taxed at your individual income tax slab rate.
|
| Long-Term (> 12 months) |
On or after Apr 1, 2025 |
12.5%, with no indexation benefit.
|
International ETFs
(listed in India) |
Any period |
On or after Apr 1, 2023 |
Taxed at your individual income tax slab rate, regardless of the holding period.
|
| Short-Term (≤ 24 months) |
On or before Mar 31, 2023, sold on or after July 23, 2024 |
Taxed at your individual income tax slab rate.
|
| Long-Term (> 24 months) |
On or before Mar 31, 2023, sold on or after July 23, 2024 |
12.5%, without indexation benefit.
|
Dividend income taxation for 2025-26
- For Fiscal Year (FY) 2025–26, dividend income is taxed at your individual income tax slab rate.
- A 10% Tax Deducted at Source (TDS) applies to residents only when the dividend from a specific company or mutual fund exceeds ₹10,000.
- The TDS rate is 20%, but a lower rate may apply based on Double Taxation Avoidance Agreements (DTAA) for non-residents.
Future of ETFs in India
The Indian ETF market is growing fast. Although ETF was introduced in 2001 in India, it has made a significant impact on the Indian economy. The trading volume has jumped from ₹26,139 crore in FY 2016-17 to ₹1,83,676 crore in FY 2023-24, which is an increase of about 600%. The Equity ETF’s AUM has consistently increased over the last 5 years.
The ETF market is on track to exceed ₹16.8 lakh crore (AU$300 bn) in 2025. The Indian ETF market has seen growth over the years, expanding by over 30% yearly, indicating India’s shift towards global passive investing norms. India-focused ETFs are growing in popularity, with increased government spending and monetary easing boosting market growth.
With projections indicating a doubling of the Indian Mutual Fund industry’s size to Rs 100 lakh crore by 2030, it is expected that ETFs and index funds will be a major force behind the growing penetration, contributing 25-30% to the mutual fund industry’s total AUM.
Benefits of Investing in ETFs
Exchange traded funds (ETFs) offer several advantages to investors. From its passive investment approach and lower expense ratio, lower than actively managed funds, ETFs are one of the popular investment opportunities in India.
Major advantages of ETFs are as follows:
1. Liquidity
One of the most beneficial aspects of ETFs is their liquidity, as they can be purchased and sold during the trading day at market prices, providing investors with flexibility and ease of trading.
2. Diversification
These funds allow investors to diversify across an entire Index instead of a single stock. This helps investors to mitigate the risk associated with a single stock.
3. Transparency
Most ETFs disclose their holding daily, allowing investors to see which securities they are investing in exactly and make better decisions about their portfolio.
4. Cost Effectiveness
Instead of researching individual stocks or bonds available in the market, investors can invest in a single ETF that reflects the performance of a particular index.
5. Elimination of Unsystematic Risks
By diversifying your investment into a variety of stocks, bonds, commodities, etc., ETFs help in spreading the risk across a broader range of assets. For example, a loss in one particular asset can be offset by profits in other assets.
Disadvantages of ETFs in India
Even though investing in ETFs has several advantages, it also comes with some drawbacks. From market volatility to tracking error, below are the significant disadvantages of exchange traded funds:
1. Market Volatility
The impact of market volatility on an ETF depends mostly on the assets within the ETF, such as bonds, equity, commodities, etc., and how they respond to the market conditions. For example, during a bull market, the impact of volatility on ETFs is positive, while during a bear market, the prices of market-linked assets steadily decline.
2. Trading Costs
For regular traders or investors trading small amounts, trading costs can be a disadvantage. Although ETFs have a lower expense ratio compared to actively managed mutual funds, brokerage commissions and bid-ask spreads can add up, mainly with high trading activity.
3. Tracking Error
Tracking error refers to the difference between an ETF’s performance and the performance of its underlying benchmark index. ETFs with high tracking error typically produce returns much lower than the benchmark index.
Conclusion
ETFs simplify investing. They provide access to a wide variety of markets without the stress of picking individual stocks or timing your entry. With a basic understanding and some planning, ETFs can be a powerful tool in your investment journey. You can easily calculate the potential returns of an ETF investment with the help of an ETF calculator.
Exchange Traded Funds (ETFs) – FAQs
Q1. Should I invest in ETFs?
ETFs can be a good option if you want easy market access, low fees, and built-in diversification. However, they are not suitable for everyone. Before investing, think about your goals, risk tolerance, and how long you plan to stay invested.
Q2. Where to buy Exchange Traded Funds?
You can buy ETFs on the stock market via a Demat and trading account with a registered broker.
Q3. Is an ETF better than a stock?
In terms of risk, ETFs are better as they are typically more diversified than stocks. But if you aim to achieve higher returns, stocks are a better option.
Q4. What is a Gold ETF?
It tracks the price of gold and lets you invest without physically holding the metal.
Q5. ETF vs Index Fund: What’s the difference?
Both exchange traded funds and index funds track an index, but ETFs offer real-time trading while index funds process orders only at day-end.
Q6. How are ETFs different from mutual funds?
ETFs are traded throughout the day like stocks and usually have lower fees. In contrast, mutual funds only trade once every day at the NAV price.