Start investing
with ETFs.
An exchange-traded fund is a simple way to own a mix of assets at once — spreading an investment across many securities without buying each one individually.
A fraction of a percent, over twenty years.
An ETF's expense ratio is usually a small fraction of an actively managed fund's.
- Low-cost Value
- ₹44,90,078
- High-cost Value
- ₹34,88,204
An illustration on the figures above, not a quote and not advice.
How an ETF works
An ETF pools money from many investors and uses it to buy a basket of assets. Each fund tracks a specific index and holds the same constituents in the same proportions — a Nifty 50 ETF holds all fifty stocks at the exact index weights.
Because the units are listed on the exchange, you buy and sell them during market hours like any share, at a price that moves through the day with supply and demand. The manager rarely changes anything unless the index does, and it is that passivity that keeps the cost down.
Worth knowing first
ETFs are held in electronic form and traded on the exchange like shares, so a demat and trading account is a prerequisite. There is no way round this.
No fund tracks its index perfectly. Compare tracking error alongside the expense ratio before choosing between two funds on the same index.
Large index ETFs trade actively; niche and thematic ones sometimes barely trade at all, which shows up as a wide spread when you try to exit.
Historical returns do not guarantee future performance. An ETF delivers the index — which includes the years the index falls.
Six kinds of ETF, and how each is taxed.
The kind decides the tax, not the wrapper. Pick one to see the rate and the one thing worth checking before you buy.
Equity index ETFs
Hold the shares of an index — Nifty 50, Sensex, Nifty Next 50 — in the index’s own weights. The simplest way to own the market at low cost.
- Short-term (12 months or less)
- 20%
- Long-term
- 12.5% above ₹1.25 lakh a year
- Check
- Tracking error and trading volume
ETFs: myth or fact?
Decide whether each is a myth or a fact, and the card turns over to tell you why.
“ETFs are only for traders.”
“An ETF’s market price can differ from its NAV.”
“Every ETF is taxed like shares.”
“An ETF costs only its expense ratio.”
“Each gold ETF unit is backed by physical gold.”
“Index ETFs cannot fall much.”
ETF, step by step.
- 1Pick the index
Broad market, sectoral, commodity or global.
- 2Buy like a share
Trades on the exchange through the day, at a live price.
- 3Held in demat
In your own name, exactly like any equity holding.
- 4Add regularly
A monthly habit does more work than timing does.
Understand ETF properly.
How it works, the types, both sides and the comparisons — for when you want the full picture.
Four reasons people choose them
ETFs are traded on the NSE and BSE, so you can buy or sell at any point during market hours, just like a stock.
A single purchase gives exposure to a broad basket — stocks, bonds or commodities, depending on the fund — which reduces single-name risk.
Most ETFs track a well-known index, which suits anyone who wants a long-term, passive holding without constant monitoring.
Passive management means lower fees than most actively managed funds, and over a long holding period that difference compounds.
Four families of ETF
Track stock market indices such as the Nifty 50, the Sensex, or sectoral indices like Nifty Bank and Nifty Infrastructure. A low-cost route into the equity market for long-term wealth creation.
Also called fixed-income ETFs, tracking debt indices such as the NIFTY 1D Rate Index or the 4–8 year and 8–13 year G-Sec indices. Suited to conservative investors wanting stability and liquidity.
Track commodities such as gold or silver, letting you take a position in the price without owning or storing the physical metal. Gold ETFs are the most widely held in India.
Give exposure to international markets by tracking indices such as the NASDAQ 100 or the Hang Seng, for participation in wealth creation outside India.
ETFs versus mutual funds
They do a similar job by very different mechanics. The differences are worth knowing before choosing between them.
| ETFs | Mutual funds | |
|---|---|---|
| Listing | Listed on stock exchanges such as the BSE and NSE | Not listed on any stock exchange |
| Trading | Units trade on the exchange like a stock, in real time during market hours | Units are bought from and sold to the fund house, not in real time |
| Pricing | The unit price fluctuates throughout the trading day | The unit price is determined once a day, after the market closes |
| Liquidity | High, particularly in the larger funds | Lower than an ETF; redemption runs through the fund house |
| Management | Passively managed against an index | Either actively or passively managed |
| Cost | Very low expense ratios, and no entry or exit load | Typically higher expense ratios, and exit loads may apply |
| Horizon | Suitable for both short and long holding periods | Better suited to longer holding periods |
ETF, answered.
You can invest in ETFs if you have a demat account, along with a trading account to place the orders.
No. A demat account is required, since ETFs are traded on stock exchanges like shares and held in electronic form.
The required amount depends on the ETF, but you can start by purchasing even a single unit, which makes it an affordable option.
Compare funds and match their risk profile to your own risk tolerance. Evaluate cost, taxability, tracking error, returns and asset allocation before deciding.
Yes, during market trading hours, just like stocks.
ETFs are suitable for both. They can be traded over short periods or held long-term for potential capital appreciation.
Returns vary depending on the ETF, the time period and market conditions. Historical returns do not guarantee future performance.
Yes. Capital gains and dividend income from ETFs are taxable under the Income Tax Act, 1961, with the treatment depending on the type of ETF and the holding period.
Both have advantages. ETFs offer liquidity and lower costs; mutual funds may be preferable where an actively managed strategy is what you want.
The whole index, at a fraction of the cost.
ETFs are held in demat, so one account covers these alongside your shares.