Exchange-traded funds (ETFs) in India

Exchange-traded funds (ETFs) in India are open-ended mutual fund schemes whose units list and trade on stock exchanges through the trading day, like listed shares. They combine the diversification of a mutual fund with the intraday liquidity and live price discovery of an exchange-listed security. Indian ETFs are regulated by SEBI under the SEBI (Mutual Funds) Regulations 1996 and trade on the NSE and BSE , with market makers, the Authorised Participants, keeping the market price close to net asset value.

This is the hub for ETFs in India. It covers the structure and the creation-redemption mechanism, the SEBI framework, the major categories from equity to silver, the iNAV and premium-discount mechanics, liquidity and impact cost, taxation by ETF type, and how to buy and sell on the exchange. The conceptual companion is the index-fund cornerstone ; the index fund versus ETF comparison sets out which wrapper suits which investor.

For an Indian retail investor, an ETF offers low-cost passive exposure (most Indian ETFs charge a TER under 0.50 per cent), intraday liquidity, daily holdings disclosure, and lower portfolio turnover than an active fund. The cost it adds over an index fund is brokerage, a bid-ask spread, and the risk of buying above or selling below the fund’s true value when the market price drifts from NAV.

The first Indian ETF was Nifty BeES , launched by Benchmark Mutual Fund on 28 December 2001 and listed on the NSE on 8 January 2002. The franchise now sits with Nippon India, and Nifty BeES still runs a direct expense ratio near 0.04 per cent.

ETF structure

An ETF is an open-ended scheme that holds a portfolio per its mandate (equity, debt, gold, silver or foreign securities), issues units that list and trade on the exchange, publishes a daily NAV, and allows continuous creation and redemption through Authorised Participants. The listing is what separates it from a conventional index fund , which transacts only at end-of-day NAV with the AMC.

Creation and redemption, and the Authorised Participant

The arbitrage that keeps an ETF’s price near its NAV runs through the Authorised Participant, a large institutional dealer appointed by the AMC. An AP creates units by depositing a basket of the underlying securities, or the cash equivalent, with the AMC and receiving ETF units in exchange, typically in a creation unit of 50,000 to 1,00,000 units. It redeems by returning units for the basket.

When the ETF’s market price rises above its NAV, the AP buys the underlying basket, creates units at NAV, and sells them on the exchange at the higher price, pocketing the spread and pushing the price back down. When the price falls below NAV, the AP buys cheap units on the exchange and redeems them for the more valuable basket. This continuous in-kind arbitrage, not a market maker’s goodwill, is what holds the price to fair value, and it is why a thinly traded ETF with an inattentive AP can drift to a wide premium or discount.

iNAV and the premium-discount

An ETF publishes two NAV figures. The end-of-day NAV is struck on the closing prices of the holdings. The indicative NAV (iNAV) updates continuously through the session, reflecting the live market value of the underlying portfolio. The gap between the traded price and the iNAV is the premium (price above iNAV) or discount (price below iNAV). For a liquid Nifty 50 ETF this gap is a few basis points; for an international ETF whose underlying market is closed during Indian hours, the gap can widen because the iNAV runs on stale foreign prices. Checking the iNAV against the quote before trading is the single most useful discipline in ETF buying.

The SEBI framework for ETFs

ETFs sit under the SEBI (Mutual Funds) Regulations 1996 and were placed in the “Other Schemes” head by the scheme categorisation circular of October 2017, which required at least 95 per cent of net assets in the underlying index’s securities.

The circular on the development of passive funds, SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated 23 May 2022 and effective 1 July 2022, set the current market-making framework. It required AMCs to adopt a board-approved market-making policy, mandated in-kind creation and redemption for the AP route including for debt ETFs, allowed direct dealing with the AMC above a value threshold to relieve on-exchange liquidity, capped the investor-education charge at 1 basis point of daily net assets, and required the underlying index or commodity name in the ETF’s nomenclature. The silver-ETF category was enabled separately by SEBI’s framework of late 2021, under which silver ETFs launched in 2022.

Major ETF categories in India

The table maps the main ETF categories to what they hold and a dated AUM or representative product, with the category’s article linked.

Equity ETFs

Equity ETFs are the deepest segment, anchored by Nifty 50 ETFs including the original Nifty BeES and the Nifty 50 ETF line from the large AMCs. Sensex, Nifty Next 50 , Nifty Midcap 150 and Nifty Smallcap 250 ETFs extend the size spectrum, while sectoral ETFs such as Bank BeES track the Nifty Bank and Nifty IT baskets. Large institutional flows, notably the EPFO’s allocation to Nifty 50 ETFs, sit behind much of the equity-ETF AUM.

Gold and silver ETFs

Gold ETFs hold vaulted physical gold and issue units against it; their AUM reached about Rs 1.85 lakh crore by May 2026 on AMFI data, almost tripling year on year on the back of a bullion rally even as the category saw its first monthly outflow, of about Rs 725 crore, in May 2026. Silver ETFs , enabled by SEBI’s 2021 framework and launched in 2022, drew net inflows of Rs 2,133 crore in May 2026. Both follow the non-equity tax rule.

Debt and international ETFs

Debt ETFs span the Bharat Bond ETF target-maturity series of government and PSU bonds, gilt ETFs, and liquid ETFs. International ETFs give foreign-equity exposure through Nasdaq 100, S&P 500 and other baskets, but sit inside the SEBI overseas-investment cap that forced several to pause fresh subscriptions in 2022. The CPSE ETF and Bharat 22 ETF are government-promoted baskets used as disinvestment vehicles.

Trading mechanics

How to buy and sell on the exchange

ETFs trade on the NSE and BSE during market hours, 9:15 am to 3:30 pm IST. An investor buys and sells through a demat-trading account exactly like a share, pays or receives the market price, and settles on the T+1 cycle. Units are held only in demat mode at CDSL or NSDL ; there is no folio or statement-of-account option, which is the key operational difference from an index fund . The dematerialisation of mutual fund units covers the account mechanics.

Bid-ask spread and impact cost

The all-in cost of an ETF is the TER plus the spread plus the brokerage, not the TER alone. Liquid ETFs such as Nifty BeES, Bank BeES and Gold BeES quote spreads of 1 to 3 basis points; less-liquid sectoral and international ETFs run 10 to 100 basis points. A wide spread is a hidden cost paid on entry and exit, so checking the spread and the iNAV before placing a market order matters more for an ETF than for an index fund. At larger ticket sizes the impact cost of moving the order book adds to the spread, which is why an institution often deals with the AP directly rather than on-exchange.

Costs

SEBI caps the TER for a passive scheme at 1.00 per cent, but most retail-relevant Indian ETFs charge far less. Nifty 50 ETFs run 0.04 to 0.10 per cent; sectoral and thematic ETFs 0.10 to 0.30 per cent; gold ETFs 0.50 to 0.80 per cent; international ETFs 0.50 to 1.00 per cent.

Beyond the TER an ETF trade carries brokerage (0.10 to 0.50 per cent, lower with a discount broker), securities transaction tax of 0.001 per cent on an equity-ETF sell, stamp duty of 0.015 per cent on the buy, GST of 18 per cent on brokerage and exchange charges, and the bid-ask spread. None of these apply to an NAV-based index-fund purchase, which is the structural cost ETFs add in exchange for their lower TER.

Tax treatment

Equity ETFs, where the scheme holds at least 65 per cent in Indian equity, are taxed as equity mutual funds : long-term gains over 12 months at 12.5 per cent above the Rs 1.25 lakh annual exemption under Section 112A , short-term gains within 12 months at 20 per cent under Section 111A , on the FY2025-26 schedule.

Gold, silver, debt and international ETFs do not get equity treatment. Gains on units bought on or after 1 April 2023 are taxed at the investor’s slab rate regardless of holding period, the same post-Finance-Act-2023 rule as a debt mutual fund . For a high-bracket investor this materially narrows the after-tax case for a gold or international ETF against an equity ETF. The capital-gains overview holds the full schedule.

ETF AUM growth in India

Indian ETF assets have grown from a niche to a structural segment. Gold ETF AUM alone reached about Rs 1.85 lakh crore by May 2026 against the total mutual fund industry AUM of Rs 81.58 lakh crore that month, per AMFI. The growth has run on EPFO and other institutional flows into Nifty 50 ETFs, retail demand for low-cost passive exposure, government promotional vehicles such as the CPSE ETF , Bharat 22 ETF and Bharat Bond ETF , the 2026 gold and silver rally, and passive-only AMC launches including the Zerodha Fund House .

See also

• Index funds in India
• Mutual funds in India
• Mutual fund industry in India
• Index fund vs ETF in India
• Mutual fund vs ETF
• Active vs passive equity in India
• Equity ETF India
• Debt ETF India
• Gold ETF India
• Silver ETF India
• International ETF India
• Bharat Bond ETF
• CPSE ETF
• Bharat 22 ETF
• Nifty 50 ETF
• Nifty BeES
• Nifty BeES, the first ETF (2001)
• Nifty 50 Index Fund
• Nifty Next 50 Index Fund
• Nifty 100 Index Fund
• Nifty 500 Index Fund
• Nifty Midcap 150 Index Fund
• Nifty Smallcap 250 Index Fund
• Sensex Index Fund
• Nifty Bank Index Fund
• Nifty IT Index Fund
• Nifty LargeMidcap 250 Index Fund
• FMCG and consumption fund
• Large cap vs index fund
• How to set up your first index-fund investment
• Sensex (the index)
• Nifty 50 (the index)
• SIP
• Motilal Oswal S&P 500 Index Fund
• Motilal Oswal Nasdaq 100
• Tracking error in index funds
• Tracking difference in index funds
• How to select an index fund
• Net asset value
• Dematerialisation of MF units
• CDSL
• NSDL
• National Stock Exchange
• Bombay Stock Exchange
• SEBI (Mutual Funds) Regulations 1996
• SEBI scheme categorisation, October 2017
• AMFI
• Equity mutual fund taxation
• LTCG on equity (Section 112A)
• STCG on equity (Section 111A)
• Capital gains tax in India
• Debt mutual fund taxation 2023
• Zerodha Fund House

External references

• AMFI mutual fund AUM data
• SEBI circular on development of passive funds (23 May 2022)
• SEBI master circular for mutual funds
• NSE ETF segment
• BSE ETF segment
• NSE Indices

References

1. SEBI (Mutual Funds) Regulations 1996 covering ETF provisions.
2. SEBI circular on development of passive funds, SEBI/HO/IMD/DOF2/P/CIR/2022/69, 23 May 2022.
3. SEBI scheme categorisation circular, SEBI/HO/IMD/DF3/CIR/P/2017/114, 6 October 2017.
4. AMFI monthly mutual fund and ETF data, May 2026.
5. NSE and BSE ETF segment documentation.