Complete Guide to Investing in ETFs in India: Best Options, Taxation & Strategies

Exchange Traded Funds (ETFs) have emerged as a popular investment option in India for both novice and seasoned investors. Offering a blend of the simplicity of mutual funds and the flexibility of stocks, ETFs can be an essential part of a diversified portfolio.

In this complete guide, we'll explore:

• What ETFs are and how they work
• The best ETFs to invest in India
• Tax implications of investing in ETFs
• Strategies to maximize returns
• FAQs on ETF investing

Also Read: Best Investment Options in India for 2025

 

Explore the best ETF investment options, taxation rules, and smart strategies in India with our 2025 complete guide.

 

What Are ETFs?

Exchange Traded Funds (ETFs) are investment funds that are traded on stock exchanges, much like individual stocks. They typically track an index, commodity, currency, or a mix of investment types.

Key Features:

• Liquidity: Buy and sell anytime during market hours.
• Diversification: Exposure to a wide range of sectors or assets.
• Low Costs: Lower expense ratios compared to mutual funds.
• Transparency: Holdings are disclosed daily.

Best ETFs to Invest in India (2025 Edition)

Here's a curated list of some of the best-performing ETFs based on popularity, returns, and asset management:

ETF Name	Category	1-Year Return (%)	Expense Ratio (%)
Nippon India Nifty 50 ETF	Equity	18.2%	0.05%
SBI ETF Nifty Bank	Sectoral (Banking)	22.5%	0.15%
ICICI Prudential Gold ETF	Commodity (Gold)	12.8%	0.30%
Motilal Oswal Nasdaq 100 ETF	International	24.1%	0.50%
HDFC Nifty Next 50 ETF	Large Midcap	19.7%	0.10%

Tip: Always check the latest NAV and ETF returns on NSE India before investing.

Taxation on ETFs in India

Understanding ETF taxation is crucial for planning your returns efficiently.

1. Equity ETFs (tracking indices like Nifty, Sensex):

• Short-Term Capital Gains (STCG): 15% if held for less than 12 months.
• Long-Term Capital Gains (LTCG): 10% (above ₹1 lakh) if held for more than 12 months.

2. Non-Equity ETFs (Gold, International, Debt):

• STCG: Taxed as per your income tax slab.
• LTCG: 20% with indexation benefits after 3 years.

For a deeper understanding, check this guide on capital gains taxation by ClearTax.

Winning Strategies to Invest in ETFs

Here are some time-tested strategies to maximize your ETF investments:

1. Systematic Investment Plan (SIP) in ETFs

Start small and invest consistently over time. Now platforms like Zerodha and Groww allow you to set up ETF SIPs easily.

2. Diversify Across Asset Classes

Don’t stick only to equity ETFs. Add gold, debt, and international ETFs to balance your portfolio.

3. Rebalance Regularly

Periodically review and rebalance your portfolio to stay aligned with your goals.

4. Low-Cost Focus

Prefer ETFs with a low expense ratio, as costs can erode your returns significantly over the long term.

5. Buy During Dips

Leverage market corrections to accumulate more units at lower prices.

Where to Buy ETFs in India?

You can buy ETFs easily through:

• Stockbrokers like Zerodha, Groww, Upstox
• Directly via your Demat account linked to a trading platform.

FAQs on ETF Investing

Q1. Are ETFs better than mutual funds?
A: ETFs generally have lower costs and are more flexible. However, mutual funds offer managed exposure, which suits passive investors.

Q2. Is it safe to invest in ETFs?
A: ETFs are market-linked instruments, and risk depends on the asset class they track. Equity ETFs can be volatile, while debt ETFs are relatively stable.

Q3. Can I do SIP in ETFs?
A: Yes! Many brokers now offer SIP options for ETFs.

Conclusion

Investing in ETFs in India offers an exciting opportunity to diversify, minimize costs, and build long-term wealth. With proper strategies, an eye on taxation, and smart diversification, you can make ETFs a powerful component of your financial plan.