Low-Cost, Transparent Investing in the Indian Market
Exchange Traded Funds (ETFs) are investment products that combine features of shares and mutual funds.
They are ideal for investors who want simplicity, diversification, and low costs.
This page explains what ETFs are, how they work in India, and when they are useful.
What Is an ETF?
An ETF:
- Is a basket of securities
- Trades on the stock exchange like a share
- Usually tracks an index, sector, or asset
When you buy an ETF unit, you indirectly invest in all securities held by that ETF.
How ETFs Work in India
In India:
- ETFs are traded on NSE and BSE
- Regulated by SEBI
- Bought and sold during market hours like shares
To invest in ETFs, you need:
- Demat account
- Trading account
Types of ETFs Available in India
📌 Index ETFs
- Track indices like NIFTY 50 or SENSEX
- Simple and widely used
📌 Sector ETFs
- Track specific sectors (Banking, IT, Pharma)
- Higher risk due to sector concentration
📌 Gold ETFs
- Track the price of gold
- No physical storage required
📌 International ETFs
- Provide exposure to global markets
- Subject to currency and global risks
ETF vs Mutual Fund (Simple Comparison)
| Aspect | ETF | Mutual Fund |
|---|---|---|
| Trading | Real-time | End-of-day NAV |
| Expense Ratio | Low | Higher |
| Minimum Investment | 1 unit | Fund-defined |
| Demat Required | Yes | No |
Benefits of ETFs
✅ Low cost
✅ High transparency
✅ Easy to buy and sell
✅ Suitable for long-term investing
✅ Good for passive investors
Risks in ETFs
- Market risk
- Liquidity risk (for less traded ETFs)
- Tracking error
Choosing well-known ETFs reduces these risks.
Who Should Invest in ETFs?
ETFs are suitable for:
- Beginners
- Long-term investors
- Passive investors
- Cost-conscious investors
They may not suit:
- Short-term traders without liquidity awareness
Common Beginner Mistakes
❌ Buying ETFs without volume
❌ Confusing ETFs with stocks
❌ Over-trading
❌ Ignoring tracking error
Key Takeaways
- ETFs combine simplicity and efficiency
- Best suited for passive, long-term investing
- Lower cost than most mutual funds
- Require Demat and Trading account
What Should You Read Next?
To complete your understanding of instruments:
👉 Debt Instruments
👉 Commodities