Exchange-Traded Funds (ETFs) have become a cornerstone of modern investing, offering a blend of diversification, liquidity, and cost-effectiveness. In India, the ETF landscape has expanded significantly, catering to a wide array of investment strategies and goals. This article delves into the various types of ETFs available in India as of 2025, helping investors make informed decisions.
What is an ETF?
An ETF, or Exchange-Traded Fund, is a type of investment fund that holds a collection of assets—such as stocks, bonds, or commodities—and trades on stock exchanges throughout the day, much like individual stocks. ETFs aim to replicate the performance of a specific index, sector, commodity, or asset class, providing investors with a straightforward way to gain exposure to a broad market segment without the need to purchase each underlying asset individually.
How do ETFs work?
ETFs operate by pooling capital from multiple investors to purchase a diversified portfolio of assets. Each ETF issues shares that represent a proportional interest in the fund’s underlying holdings. These shares are traded on stock exchanges, allowing investors to buy and sell them at market prices during trading hours. The fund’s performance mirrors that of its underlying assets, and its price fluctuates accordingly. This structure offers investors the dual benefits of diversification and liquidity.
List of Different Types of ETFs in India
The Indian ETF market offers a variety of options tailored to different investment preferences:
- Equity ETFs: These ETFs invest in a basket of stocks, often tracking indices like the Nifty 50 or BSE Sensex. They provide exposure to the equity market and are suitable for investors seeking growth potential.
- Bond ETFs: Focusing on fixed-income securities, bond ETFs invest in government or corporate bonds. They are ideal for investors looking for regular income with lower risk compared to equities.
- Commodity ETFs: These ETFs invest in physical commodities such as gold, silver, or oil. For instance, Gold ETFs are popular among investors aiming to hedge against inflation.
- Sector ETFs: Targeting specific industries like technology, healthcare, or finance, sector ETFs allow investors to focus on particular segments of the economy.
- International ETFs: These provide exposure to global markets, enabling investors to diversify beyond domestic equities.
- Thematic ETFs: Focusing on emerging trends or themes, such as renewable energy or artificial intelligence, thematic ETFs cater to investors interested in specific growth areas.
Overview of Types of ETFs in India in 2025
As of 2025, the Indian ETF landscape has evolved to include a diverse array of funds catering to various investment strategies. The table below provides an overview of some prominent ETFs across different categories:
| ETF Name | Category | Underlying Index/Asset | Expense Ratio | Assets Under Management (AUM) |
|---|---|---|---|---|
| Nippon India ETF Nifty 50 BeES | Equity | Nifty 50 Index | 0.05% | ₹10,000 Cr |
| SBI ETF 10 Year Gilt | Bond | Nifty 10 yr Benchmark G-Sec Index | 0.10% | ₹5,000 Cr |
| HDFC Gold ETF | Commodity | Physical Gold | 0.40% | ₹3,500 Cr |
| ICICI Prudential IT ETF | Sector | Nifty IT Index | 0.25% | ₹2,000 Cr |
| Mirae Asset NYSE FANG+ ETF | International | NYSE FANG+ Index | 0.33% | ₹1,500 Cr |
Which ETF is Best for You?
Selecting the right ETF depends on your investment objectives, risk tolerance, and time horizon:
- Risk Appetite: Equity and sector ETFs may offer higher returns but come with increased volatility. Conversely, bond and commodity ETFs typically provide more stable returns with lower risk.
- Investment Horizon: For long-term goals, equity and thematic ETFs might be suitable, whereas bond ETFs could be better for short to medium-term objectives.
- Diversification Needs: International ETFs can help diversify your portfolio beyond domestic markets.
It’s essential to assess your financial goals and consult with a financial advisor to determine the most appropriate ETFs for your portfolio.
Tax Implications of ETFs in India
Understanding the tax implications of Exchange-Traded Funds (ETFs) in India is crucial for investors aiming to optimize their returns. Taxation varies based on the type of ETF and the holding period.
Equity-Oriented ETFs:
- Short-Term Capital Gains (STCG): If units are held for 12 months or less, gains are taxed at 15%.
- Long-Term Capital Gains (LTCG): For holdings exceeding 12 months, gains up to ₹1 lakh are exempt annually. Beyond this, LTCG is taxed at 10% without indexation benefits.
Non-Equity ETFs (e.g., Debt and Commodity ETFs):
- Short-Term Capital Gains: For units held for 36 months or less, gains are added to the investor’s income and taxed as per the applicable income tax slab.
- Long-Term Capital Gains: Holdings beyond 36 months are taxed at 20% with indexation benefits.
Dividend Income:
Dividends received from ETFs are classified as ‘Income from Other Sources’ and taxed according to the investor’s applicable income tax slab rates.
Costs Associated with Investing in ETFs
Investing in ETFs involves several costs that investors should consider:
- Expense Ratio: This annual fee covers the fund’s operating expenses, including management fees, administrative costs, and other operational expenses. ETFs generally have lower expense ratios compared to mutual funds due to their passive management style.
- Brokerage Commissions: Since ETFs are traded like stocks, purchasing or selling ETF units incurs brokerage fees. These charges vary depending on the brokerage firm and the transaction volume.
- Bid-Ask Spread: The difference between the buying (ask) and selling (bid) price of an ETF can represent a cost, especially for ETFs with lower liquidity. A narrower spread indicates lower transaction costs.
- Statutory Charges and Taxes: Investors may also incur additional costs such as Securities Transaction Tax (STT), Goods and Services Tax (GST), and other regulatory levies during ETF transactions.
Being aware of these costs helps investors make informed decisions and effectively manage their investment expenses.
Conclusion
Exchange-Traded Funds (ETFs) offer a versatile and efficient means of achieving diversified exposure to various asset classes in India. By understanding the different types of ETFs available, their tax implications, and associated costs, investors can align their investment choices with their financial goals and risk tolerance. As the Indian ETF market continues to evolve, staying informed and consulting with financial advisors can aid in making prudent investment decisions.
FAQ
1. What are the tax implications of investing in ETFs in India?
The taxation of ETFs in India depends on the type of ETF (equity or non-equity) and the holding period. Equity-oriented ETFs held for more than 12 months qualify for long-term capital gains tax at 10% (beyond an exemption limit), while those held for less than 12 months are subject to short-term capital gains tax at 15%. Non-equity ETFs, such as bond or commodity ETFs, have different tax treatments, with long-term considered after 36 months and taxed at 20% with indexation benefits.
2. How can I invest in ETFs in India?
Investing in ETFs requires a demat and trading account with a brokerage firm. Once set up, you can buy and sell ETF units on the stock exchange during market hours, similar to trading stocks.
3. Are ETFs suitable for new investors?
Yes, ETFs can be suitable for new investors due to their diversified nature, which reduces risk compared to investing in individual stocks. However, it’s crucial to understand the underlying assets and market dynamics before investing.
4. Do ETFs pay dividends?
Some ETFs distribute dividends received from their underlying assets to investors, while others reinvest them. It’s important to check the specific ETF’s policy on dividends.
5. What are the costs associated with investing in ETFs?
Investing in ETFs involves costs such as the expense ratio, brokerage commissions, bid-ask spreads, and statutory charges. Being aware of these expenses is essential for effective investment planning.