Top 5 Exchange Traded Funds (ETF) – Meaning, Types, Benefits
Explore Exchange Traded Funds (ETF) – Meaning, Types, Benefits and how ETFs are revolutionizing investing in India, from passive income strategies to smart diversification tools. Discover types, benefits, and top ETFs to invest in 2025.
What is an Exchange Traded Funds (ETF)?
An ETF (Exchange Traded Fund) is a type of investment fund that is traded on stock exchanges, much like stocks. It holds a collection of assets such as stocks, bonds, commodities, or a mix, and typically tracks an index like Nifty 50 or Sensex.
How Do ETFs Work in India?
In India, ETFs are managed by AMCs (Asset Management Companies) and listed on the NSE and BSE. You can buy and sell ETF units during market hours just like any other stock. Prices fluctuate based on the Net Asset Value (NAV) of the underlying assets.
Types of Exchange Traded Funds (ETFs) in India
1. Equity ETFs
Track stock indices like Nifty 50, Sensex, or sectoral indices (e.g., banking, IT).
2. Debt ETFs
Invest in government securities or corporate bonds (e.g., Bharat Bond ETF).
3. Gold ETFs
Track the price of physical gold, providing a hedge against inflation.
4. International ETFs
Provide exposure to global markets like NASDAQ-100 or S&P 500.
5. Thematic or Sectoral ETFs
Target specific themes like ESG, PSU, or smart beta strategies.
Benefits of ETFs
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Low Expense Ratio compared to mutual funds
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Liquidity — Traded like a stock during market hours
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Transparency — Holdings disclosed daily
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Diversification — Exposure to a basket of securities
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Tax Efficient — Long-term capital gains benefit after 1 year (in most cases)
Top Exchange Traded Funds (ETFs) in India (2025)
| ETF Name | Type | AMC | Tracking Index | Expense Ratio | AUM (₹ Crores) |
|---|---|---|---|---|---|
| Nippon India ETF Nifty BeES | Equity | Nippon India | Nifty 50 | 0.05% | 6,000+ |
| SBI ETF Nifty 50 | Equity | SBI Mutual Fund | Nifty 50 | 0.07% | 7,500+ |
| ICICI Prudential Gold ETF | Gold | ICICI Prudential | Physical Gold Price | 0.50% | 2,000+ |
| Bharat Bond ETF | Debt | Edelweiss AMC | Government Bonds | 0.0005% | 15,000+ |
| Motilal Oswal Nasdaq 100 | International | Motilal Oswal AMC | Nasdaq-100 | 0.54% | 1,300+ |
Exchange Traded Funds vs Mutual Fund: Key Differences
| Feature | ETFs | Mutual Funds |
|---|---|---|
| Trading | Intra-day via stock exchange | Once a day at NAV |
| Expense Ratio | Generally lower | Higher due to active management |
| Liquidity | High | Limited to end-of-day redemption |
| Transparency | High (daily portfolio disclosure) | Monthly or quarterly disclosure |
| Investment Mode | Requires Demat Account | Demat optional |
How to Invest in ETFs in India?
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Open a Demat and trading account with a registered broker.
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Choose your ETF based on investment goals (equity, gold, debt).
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Place buy orders during market hours like regular stocks.
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Track performance using NAV and total returns.
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Sell when required, just like selling shares.
Are ETFs Safe to Invest In?
ETFs are regulated by SEBI and are considered safe, diversified, and transparent investment tools, especially for passive investors. However, like any market-linked instrument, they are subject to market risk.
Also read: Top 3 Contra Mutual Funds to Watch in India 2025
Taxation on ETFs in India
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Equity ETFs: LTCG (after 1 year) taxed at 10% above ₹1 lakh. STCG taxed at 15%.
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Non-equity ETFs (gold, debt, international): Taxed as debt funds. LTCG (after 3 years) at 20% with indexation.
FAQs on ETFs in India
1. Are ETFs better than mutual funds?
ETFs offer lower costs and more liquidity, but mutual funds may suit investors seeking SIPs and fund manager expertise.
2. Can I invest in ETFs through SIP?
Most ETFs do not support SIPs via brokers, but mutual fund houses offer ETF funds with SIP features.
3. Do ETFs give dividends?
Yes, some ETFs offer dividend options. Others reinvest earnings (growth option).
4. What is the minimum investment in ETFs?
Usually the price of one unit (refer NSE India EFT List).
5. Are ETFs safe for long-term investment?
Yes, especially index-based ETFs with low expense ratios.
6. Which ETF is best for beginners?
Nifty 50 or Sensex ETFs are ideal due to their broad market exposure.
7. How do I track ETF performance?
You can use platforms like NSE, BSE, or your brokerage app.
8. Is a Demat account mandatory for ETF investment?
Yes, it is necessary to buy and hold ETFs.
9. What are Bharat Bond ETFs?
They are debt ETFs investing in government bonds with high credit ratings and ultra-low fees.
10. Can ETFs be held for retirement planning?
Yes, they are excellent passive investment vehicles for long-term wealth creation.
