ETF Investing in India: Low-Cost Market Exposure for Smart Investors

Exchange-Traded Funds (ETFs) are the fastest-growing investment product in India. ETF assets under management crossed ₹7 lakh crore in 2024-25 – a tenfold increase in just five years. But most retail investors still don’t fully understand what ETFs are and how to use them effectively.

What Is an ETF?

An ETF is a fund that holds a basket of assets (stocks, bonds, gold, etc.) and trades on a stock exchange just like a share. Like index mutual funds, most ETFs passively track an index. Unlike mutual funds, ETFs are bought and sold in real-time at market prices throughout the trading day.

ETFs vs Index Mutual Funds

• Expense Ratio: ETFs typically have lower expense ratios (0.05–0.25%) vs index funds (0.10–0.30%). Difference is minimal for small portfolios.
• Trading: ETFs trade on exchanges in real-time; index funds trade once per day at closing NAV.
• Investment: ETFs require a Demat account; index funds can be bought directly or through apps without one.
• SIP: Easy to set up SIPs in index funds; ETFs require a broker who supports ETF SIPs (Zerodha, Groww).

Best ETFs for Indian Retail Investors

• Nippon India Nifty 50 BeES: India’s oldest ETF. Tracks Nifty 50. Highly liquid.
• HDFC Nifty Next 50 ETF: The next 50 large-cap stocks after Nifty 50. Slightly higher growth potential.
• Nippon India Gold ETF: Physical gold-backed ETF. Easiest way to invest in gold.
• Bharat Bond ETF: Invests in AAA-rated PSU bonds. Fixed maturity, known yield, low risk.