Investing in the stock market can be intimidating, especially for beginners. But what if there was a way to invest in a diversified portfolio without the hassle of picking individual stocks? Enter ETFs (Exchange-Traded Funds), a popular investment vehicle that combines the best of mutual funds and stocks.
If you’re wondering how to start investing in ETFs in India, you’re in the right place. This guide will walk you through everything you need to know, from the basics to advanced strategies.
ETFs are investment funds that are traded on stock exchanges, just like stocks. They hold a basket of securities, including stocks, bonds, commodities, or a mix of asset classes. ETFs are designed to track an index, commodity, or sector and provide investors with exposure to a diversified portfolio at a low cost.
Types of ETFs Available in India
Before investing in ETFs, it is essential to understand the different types available in the Indian market:
| Type of ETF | Description |
|---|---|
| Equity ETFs | Track stock market indices like Nifty 50, Sensex, Nifty Next 50, etc. |
| Debt ETFs | Invest in government and corporate bonds for stable returns. |
| Gold ETFs | Track gold prices, allowing investors to invest in gold digitally. |
| Sectoral ETFs | Focus on specific sectors such as banking, IT, pharma, etc. |
| International ETFs | Provide exposure to global markets like the S&P 500 or Nasdaq. |
Step-by-Step Guide to Start Investing in ETFs in India
🔹 Step 1: Open a Demat & Trading Account
To buy and sell ETFs, you need a Demat account and a trading account with a registered stockbroker (such as Zerodha, Upstox, Groww, etc.).
How to Open a Demat Account?
- Choose a SEBI-registered brokerage firm.
- Complete the KYC process by submitting PAN, Aadhaar, and bank details.
- Sign the account opening agreement and get your login credentials.
🔹 Step 2: Research & Select the Right ETF
There are multiple ETFs available, so selecting the right one is crucial. Consider:
✔ Investment Objective – Are you looking for long-term growth, stable income, or hedging against inflation?
✔ Expense Ratio – Lower is better for long-term returns.
✔ Tracking Error – Measures how well the ETF tracks its index; lower is better.
✔ Liquidity – Ensure the ETF has good trading volume for easy buying and selling.
✔ Underlying Index – Choose based on your risk appetite (Nifty 50 ETFs for stability, sectoral ETFs for higher risk-reward).
🔹 Step 3: Place Your Order
Once you’ve chosen an ETF:
- Log in to your trading account.
- Search for the ETF using its ticker symbol.
- Select the number of units and place a market or limit order.
- Confirm the purchase, and the units will be credited to your Demat account.
🔹 Step 4: Monitor & Rebalance Your Portfolio
Unlike traditional mutual funds, ETFs require active monitoring. Keep an eye on: ✔ Performance relative to the index. ✔ Market trends and economic conditions. ✔ Expense ratios and fund house credibility. ✔ Portfolio rebalancing if market conditions change.
Tips for First-Time ETF Investors
- 💡 Start small – invest in index ETFs before exploring sectoral ETFs.
- 💡 Choose ETFs with low tracking error and high liquidity.
- 💡 Avoid frequent buying and selling to minimize costs.
- 💡 Monitor portfolio performance quarterly.
- 💡 Use SIP mode for cost-averaging benefits.
FAQs About Investing in ETFs in India
Here are 10 Frequently Asked Questions (FAQs) About Investing in ETFs in India:
1️⃣ What is an ETF and how does it work?
An Exchange-Traded Fund (ETF) is a marketable security that tracks an index, commodity, bonds, or a basket of assets. ETFs trade on stock exchanges just like stocks and offer diversification at a lower cost.
2️⃣ How can I start investing in ETFs in India?
To invest in ETFs, you need to open a Demat and trading account with a registered stockbroker, choose an ETF that suits your investment goals, and buy it through your brokerage platform.
3️⃣ Are ETFs better than mutual funds?
ETFs typically have lower expense ratios than mutual funds and provide real-time trading flexibility. However, mutual funds offer professional management and systematic investment plans (SIP), which ETFs lack.
4️⃣ Which are the best ETFs to invest in India?
Some of the popular ETFs in India include:
✔ SBI Nifty 50 ETF (Tracks Nifty 50)
✔ ICICI Prudential Gold ETF (Tracks Gold prices)
✔ Nippon India ETF Nifty Next 50 (Tracks Nifty Next 50)
✔ Motilal Oswal Nasdaq 100 ETF (Tracks Nasdaq 100)
5️⃣ What are the tax implications of ETFs in India?
✔ Equity ETFs – 12.5% LTCG tax (above ₹1.25 lakh) and 20% STCG tax
✔ Debt ETFs – Taxed as per income slab for short-term, 20% with indexation for long-term
✔ Gold ETFs – 20% LTCG with indexation after 2 years
6️⃣ Is there a minimum investment required for ETFs?
No, you can buy even a single unit of an ETF, making it a flexible investment option. However, some brokers may have a minimum balance requirement.
7️⃣ Do ETFs pay dividends?
Yes, some ETFs distribute dividends received from the underlying stocks, while others reinvest them, affecting the ETF’s price performance.
8️⃣ Can I do SIP in ETFs?
While ETFs do not offer direct SIPs like mutual funds, you can create a manual SIP by investing a fixed amount in ETFs at regular intervals. Some brokers also offer automated ETF SIP options.
9️⃣ What are the risks of investing in ETFs?
✔ Market Risk – Prices fluctuate with market conditions
✔ Tracking Error – Some ETFs may not perfectly follow their benchmark
✔ Liquidity Risk – Low trading volumes may affect buying/selling efficiency
🔟 Where can I check ETF performance in India?
You can track ETF performance on:
📌 NSE India (www.nseindia.com)
📌 BSE India (www.bseindia.com)
📌 Brokers’ platforms like Zerodha, Upstox, Groww, etc.
Investing in ETFs in India is an excellent way to gain exposure to different asset classes with low costs and diversified risk. By following the right approach—choosing the correct ETF, opening a Demat account, and monitoring investments—you can maximize returns while minimizing risks.
