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ETF full form is Exchange Traded Fund. ETF is a type of security that combines the features of both stocks and mutual funds. Like stocks, ETFs are traded on stock exchanges like Bombay Stock Exchange and National Stock Exchange. Investors can buy or sell Exchange Traded Funds throughout the trading day at market prices. Like mutual funds, ETFs also pool money from investors to invest in various securities. However, unlike mutual funds, which are priced only at the trading day’s end, ETFs offer real-time pricing.
If you’re interested in investing in an ETF, then it is essential for you to understand all the basics about it. Doing so will allow you to make informed decisions and fully comprehend what you're getting into.
An Exchange Traded Fund can be described as a collection of investments, like stocks and bonds, that can be purchased and sold by investors just like how the individual stocks are sold.
Like a mutual fund, an ETF is also a pooled investment vehicle that allows investors to diversify their portfolio. However, ETFs are traded like stocks on exchanges and experience price changes throughout the day. On the other hand, mutual funds update their net asset value (NAV) at the end of each trading day, not throughout the day. As a result, they can only be bought or sold once the market closes.
Further, ETFs generally have lower costs while mutual funds may have higher fees and investment minimums. Compared to mutual funds, ETFs are more tax-efficient and transparent.
Some popular ETFs in India are Nippon India ETF Gold BeES, CPSE ETF, SBI Gold ETF, Motilal Oswal NASDAQ 100 ETF and AXIS Gold ETF.
In India, there are five major types of exchange traded funds namely: equity, debt, gold, global, and smart beta. Each ETF type has been explained below:
Equity ETFs are also popularly known as stock ETFs. These ETFs follow an index of stocks, like the Nifty 50 index, BSE Sensex, S&P 500, etc. They are the most famous type of ETF.
Equity exchange-traded funds (ETFs) mimic the performance of their underlying index by holding the same companies in similar proportion to the index. An ETF that tracks the S&P 500, for instance, would have stocks from each of the 500 firms that make up the index.
For centuries, gold has been a highly preferred investment option for Indians. However, investing in physical gold isn’t the best option. A safe storage is required to store physical gold, and there’s always a fear of theft or loss in the back of mind.
Gold ETFs offer a convenient way for investors to add gold to their portfolio without the hassle of storing physical metal. Moreover, such ETFs can be sold any time during the trading day on a stock exchange at real time prices.
Some popular Gold ETFs are Aditya BSL Gold ETF, ICICI Prudential Gold ETF, Kotak Gold Etf and Quantum Gold Fund.
Debt ETFs are investment products that enable investors to gain exposure to fixed-income securities, such as corporate or government bonds. Just like other types of ETFs, debt exchange traded funds are also listed on BSE and NSE.
Debt exchange-traded funds (ETFs) in India are sometimes called bond ETFs because of their high exposure to bonds as the underlying asset.
Some popular Debt ETFs are Bharat Bond ETF and Axis Nifty AAA Bond Plus SDL Apr 2026 50:50 ETF.
Smart Beta Exchange Traded Funds are made up of a selection of stocks based on factors like low volatility, value or momentum. The aim of a smart beta ETF is to provide better returns or reduce risk rather than simply following a standard market index.
Some popular smart beta ETFs are ICICI Prudential Nifty Low Vol 30 ETF, Nippon India ETF NV20, and Axis NIFTY 100 Quality 30 ETF.
International ETFs provide exposure to global companies. They invest specifically in foreign-based securities. The focus of an international ETF may be on global or on a specific country.
Some examples of international ETFs are Mirae Asset NYSE FANG+ ETF and Motilal Oswal Nasdaq 100 ETF.
Investing in an exchange traded fund provides a variety of benefits to the investors, such as:
Since an ETF is a collection of assets like equities, bonds or commodities, the investors get exposure to different assets at a fraction of the cost.
They enable quick portfolio diversification for investors. There’s no need to bother with choosing all the assets manually.
ETFs can be purchased in small sizes and tracked anytime. They can be traded easily just like stocks, using a mobile trading app like Zerodha, Motilal Oswal, etc.
Exchange Traded Funds are popular amongst those with limited knowledge about financial markets. These funds invest in pre-created baskets after considering various factors like risk level, value, etc.
ETFs are taxed depending on the time period for which they are held. If ETFs are held for less than or equal to one year, short-term capital gains tax will be applicable on the profit. If they are held for more than one year, then long-term capital gains tax will be applicable on the profit.
The short-term capital gains tax rate on exchange-traded funds (ETFs) has gone up from 15% to 20% since Union Budget 2024. Meanwhile, ETFs held for long term are subject to long-term capital gains tax rate of 12.5% which was previously 10% before the Budget announcement.
Exchange Traded Funds are a popular type of security. Just like stocks, ETFs can also be purchased and traded on stock exchanges. If you want to diversify your portfolio, you can consider making an investment in an ETF. However, it is important to consider its risk, volatility, tax implication among other factors. If you do careful research and have a clear investment strategy, ETFs can be a valuable addition to your financial portfolio, and help you to achieve both short and long-term objectives.
Want to offer investment advisory services to clients? Connect with Registrationwala to obtain a Registered Investment Advisor (RIA) license from the Securities and Exchange Board of India (SEBI).
Q1. What is the full form of ETF?
A. The full form of ETF is Exchange Traded Fund.
Q2. How are ETFs taxed in India?
A. ETFs held for one year or less are taxed at 20%, while ETFs held for more than one year are taxed at 12.5%.
Q3. Why do people choose Exchange Traded Funds over Mutual Funds?
A. Many investors opt for ETFs over MFs since the latter provide real-time price and can be sold during market hours.
Q4. Who regulates ETFs in India?
A. Exchange Traded Funds (ETFs) in India are regulated by the Securities and Exchange Board of India (SEBI).
Q5. What was the first ETF to be launched in India?
A. The first ETF to be launched in India was Nifty BeEs in 2002.
Disclaimer: This blog post is intended for educational purposes only. Registrationwala does not endorse or recommend any of the ETFs mentioned herein. Readers are advised to conduct their own research and consult with a qualified financial advisor before making any investment decisions. Investing involves risks, and any financial losses incurred are the sole responsibility of the reader. Registrationwala is not liable for any investment outcomes.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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