Main points
- ETFs = Exchange Traded Funds. They trade like stocks but hold a basket of securities (like mutual funds).
- Lower cost: ETFs charge 0.05-0.5% expense ratio vs 1-2.5% for mutual funds.
- Real-time trading: Buy/sell anytime during market hours at live prices. Mutual funds only at end-of-day NAV.
- Tax efficiency: Same as stocks (10% LTCG above ₹1.25L, 20% STCG).
- Best for passive investing: Nifty 50 ETF returns 12-13% with 0.05% fees (vs 11-12% for mutual funds).
- Liquidity matters: Only trade ETFs with ₹10+ crore daily volume. Low liquidity = wide bid-ask spreads.
The ₹18 Lakh Difference You're Not Seeing
Two investors. Same strategy: invest ₹10,000/month in Nifty 50 for 20 years.
Investor A: Buys HDFC Nifty 50 Index Fund (mutual fund, 0.35% expense ratio)
Investor B: Buys Nippon India ETF Nifty BeES (ETF, 0.05% expense ratio)
Both track the EXACT same index. Both hold the same 50 stocks. Same allocation. Same rebalancing.
Fast forward 20 years...
Investor A (mutual fund): ₹1.02 crore
Investor B (ETF): ₹1.08 crore
Difference? ₹6 lakhs. Just from 0.3% lower fees compounded over 20 years.
But wait, there's more...
Investor A had to wait until 3 PM to know the NAV and complete the purchase. Market crashed 2% at 1 PM? He couldn't exit.
Investor B sold his ETF at 1:05 PM during the crash, bought back at 2:30 PM after the bounce, and made an extra ₹12,000 in a single day.
This is the superpower of ETFs that nobody talks about: Control + Low Cost + Flexibility.
Why Your Advisor Won't Recommend ETFs
Mutual fund distributors earn 0.5-1.5% commission annually on your investments.
ETFs? ₹0 commission. You buy them directly like stocks. No middleman. No recurring fees for advisors.
That's why 99% of wealth managers push mutual funds and never mention ETFs.
What Is an ETF? (The No-BS Explanation)
ETF = Exchange Traded Fund
Think of it as a hybrid between a stock and a mutual fund:
- Like a mutual fund: Holds a basket of stocks/bonds (you get instant diversification)
- Like a stock: Trades on stock exchange in real-time (NSE, BSE), has live price changes every second
The Mental Model:
Imagine you want to buy all 50 Nifty stocks (Reliance, HDFC Bank, TCS, etc.).
To buy them individually, you'd need ₹5+ lakhs, pay brokerage on 50 trades, and manually rebalance every quarter.
OR...
You buy 1 unit of Nifty 50 ETF for ₹250. Done. You now own a tiny piece of all 50 companies in perfect index proportion.
How ETFs Work (Behind the Scenes)
Creation Process:
- ETF fund manager (e.g., Nippon India) creates 1 crore ETF units
- Buys all 50 Nifty stocks in exact index weightage (₹250 crore portfolio)
- Lists these units on NSE/BSE for trading
- You buy/sell units throughout the day at market price
Key difference vs mutual funds:
• Mutual fund: Fund manager buys/sells stocks when YOU invest/redeem (creates
transaction costs, taxes)
• ETF: Fund manager buys stocks ONCE. Investors trade
units among themselves (no impact on underlying portfolio)
This is why ETFs are more tax efficient and have lower costs.
ETF vs Mutual Fund vs Direct Stocks: The Battle Royale
| Feature | ETF | Index Mutual Fund | Direct Stocks |
|---|---|---|---|
| Expense Ratio | 0.05-0.5% | 0.1-2% | ₹0 (only brokerage) |
| Trading | Real-time during market hours | End of day NAV only | Real-time |
| Minimum Investment | 1 unit (₹50-500) | ₹500-5,000 | ₹50-50,000 per stock |
| Diversification | Instant (50-500 stocks) | Instant (50-500 stocks) | Manual (need ₹2L+ for 15 stocks) |
| SIP Available | Yes (manual or via Zerodha Coin) | Yes (automatic) | Yes (manual) |
| Taxation (LTCG) | 10% above ₹1.25L | 10% above ₹1.25L | 10% above ₹1.25L |
| Transparency | Live holdings visible | Monthly holdings disclosure | You control everything |
| Liquidity | Can vary (check volumes) | High (redeem anytime) | High (for large caps) |
| Rebalancing | Automatic (fund does it) | Automatic (fund does it) | Manual (you do it) |
When to Pick ETFs Over Mutual Funds:
- You want the LOWEST possible cost (0.05% vs 0.3%+)
- You want intraday trading flexibility (buy dips, sell rallies)
- You want complete transparency (see exact holdings in real-time)
- You're investing in indices (Nifty 50, Sensex, Nasdaq 100) where active management adds ZERO value
When to Pick Mutual Funds Over ETFs:
- You want fully automatic SIP (no manual effort)
- You're investing in less liquid ETFs (low trading volume = wide spreads)
- You want fractional units (mutual funds allow ₹5,000 SIP; ETFs require whole units)
Types of ETFs in India (What's Actually Available)
ETF Categories for Indian Investors (2026)
| ETF Type | What It Holds | Example ETFs | Use Case |
|---|---|---|---|
| Nifty 50 ETFs | Top 50 companies by market cap | Nippon BeES, HDFC Nifty ETF, ICICI Pru Nifty ETF | Core long-term portfolio |
| Nifty Next 50 ETFs | Companies ranked 51-100 | Nippon JuniorBeES, ICICI Nifty Next 50 ETF | Mid cap exposure, higher growth |
| Bank Nifty ETFs | 12 major banks (HDFC, ICICI, SBI, Kotak) | Nippon BankBeES | Play banking sector growth |
| Gold ETFs | Physical gold (1 unit = 1 gram) | Nippon Gold BeES, HDFC Gold ETF | Hedge against inflation, portfolio diversification |
| PSU Bank ETFs | Public sector banks (SBI, BoB, PNB) | Nippon PSU Bank BeES | High risk, mean reversion bets |
| IT Sector ETFs | TCS, Infosys, Wipro, HCL Tech | Nippon IT BeES | Tech sector exposure |
| Pharma ETFs | Sun Pharma, Dr Reddy's, Cipla | Nippon Pharma BeES | Healthcare sector play |
| International ETFs | US stocks (Nasdaq 100, S&P 500) | Nippon NV20 ETF, Motilal Nasdaq 100 ETF | US tech exposure (Apple, Microsoft, Nvidia) |
| Liquid ETFs | Government bonds, T-bills | Nippon Liquid BeES | Emergency fund, better than savings account |
| Bharat 22 ETF | 22 PSU companies (ONGC, Coal India, etc.) | CPSE ETF | Government disinvestment play |
How to Buy ETFs in India (Step-by-Step for Zerodha/Groww)
Method 1: Buy ETFs on NSE (Like Buying Stocks)
Buying ETFs on Zerodha Kite (Step-by-Step)
- Open Zerodha Kite app/website (or Groww, Upstox, Angel One)
- Search for the ETF ticker:
- Nifty 50 ETF: Type "NIFTYBEES" or "ICICIPRUIN"
- Gold ETF: Type "GOLDBEES"
- Bank Nifty ETF: Type "BANKBEES"
- Click "Buy" (just like buying a stock)
- Select order type:
- Market order: Buy at current price instantly
- Limit order: Set your price (e.g., buy only if price drops to ₹240)
- Enter quantity: How many units you want (1 unit = ₹200-500 depending on ETF)
- Choose "CNC" (delivery): NOT intraday
- Place order. Done!
Brokerage: ₹20 per order on Zerodha (₹0 on delivery for Groww). STT: 0.1%.
Settlement: ETF units appear in your demat account in T+1 (next day).
Method 2: SIP in ETFs (Automated Monthly Investing)
Zerodha Coin and a few platforms now offer SIP in ETFs (previously only mutual funds had this).
Setting Up ETF SIP on Zerodha Coin
- Go to Zerodha Coin (separate app for mutual funds & ETFs)
- Search for the ETF (e.g., "Nifty BeES")
- Click "Start SIP"
- Enter monthly amount (e.g., ₹5,000) and date (5th, 10th, 15th, 20th, 25th, 30th)
- Zerodha automatically buys units on that date every month
Advantage: Rupee cost averaging (buy more units when price is low).
Disadvantage: You will likely get fractional units (e.g., 10.34 units instead of exactly 10).
Best ETFs for Indian Investors (2026 Edition)
1. Core Portfolio: Nifty 50 ETF
| ETF Name | Expense Ratio | AUM | Avg Daily Volume | Tracking Error |
|---|---|---|---|---|
| Nippon India ETF Nifty BeES | 0.05% | ₹3,200 crore | ₹45 crore | 0.02% |
| HDFC Nifty 50 ETF | 0.05% | ₹1,850 crore | ₹22 crore | 0.03% |
| ICICI Pru Nifty ETF | 0.05% | ₹2,100 crore | ₹18 crore | 0.04% |
Verdict: Nippon Nifty BeES is the OG (launched in 2001). Highest liquidity, lowest tracking error. This should be 50-60% of your ETF portfolio.
2. Satellite Portfolio: Nifty Next 50 ETF
| ETF Name | Expense Ratio | Returns (5Y CAGR) | Why Buy |
|---|---|---|---|
| Nippon India Junior BeES | 0.29% | 18.2% | Future Nifty 50 companies (Adani Ports, Jio, Zomato) |
| ICICI Pru Nifty Next 50 ETF | 0.19% | 18.1% | Higher growth than Nifty 50, less risky than small caps |
Allocation: 20-30% of portfolio. These are tomorrow's blue chips.
3. Gold ETF (Inflation Hedge)
| ETF Name | Expense Ratio | 1 Unit = | Why Buy |
|---|---|---|---|
| Nippon India Gold BeES | 0.49% | 1 gram gold | No storage hassle, high liquidity |
| HDFC Gold ETF | 0.50% | 1 gram gold | Backed by physical gold in vault |
Why Gold ETF > Physical Gold:
- No making charges (save 10-15%)
- No storage/locker cost
- 100% purity guaranteed
- Instant liquidity (sell in 1 second on NSE)
- Tax: 12.5% LTCG after 2 years (same as physical gold)
Allocation: 5-10% of portfolio as hedge.
4. International ETFs (US Tech Exposure)
| ETF Name | Tracks | Expense Ratio | Top Holdings |
|---|---|---|---|
| Motilal Oswal Nasdaq 100 ETF | Nasdaq 100 (US tech) | 0.81% | Apple, Microsoft, Nvidia, Amazon, Tesla, Google |
| Nippon India ETF Nifty IT | Indian IT sector | 0.59% | TCS, Infosys, Wipro, HCL Tech |
Why Nasdaq 100 ETF?
- Get exposure to Apple, Microsoft, Nvidia, Google WITHOUT opening US brokerage account
- Currency benefit: If rupee depreciates, your returns boost (dollar gains + stock gains)
- Nasdaq 100 returned 18% CAGR over 20 years (vs 13% for Nifty 50)
Allocation: 10-15% for geographical diversification.
5. Sector ETFs (For Tactical Bets)
Only use these if you believe a specific sector is undervalued/about to boom.
- Bank Nifty ETF: When interest rates peak (profit margins expand for banks)
- IT ETF: When rupee depreciates (IT exports become more profitable)
- Pharma ETF: When healthcare spending increases (post-pandemic world)
- PSU Bank ETF: High risk/high reward turnaround play
Warning: Sector ETFs are 2x more volatile than Nifty 50. Only allocate 5-10% max.
ETF Taxation in India (2026 Rules)
Tax Rules for Different ETF Types
| ETF Type | Long Term (LTCG) | Short Term (STCG) | Holding Period |
|---|---|---|---|
| Equity ETFs (Nifty 50, Bank Nifty, IT, etc.) |
10% on gains above ₹1.25 lakh/year | 20% | 1 year |
| Gold ETFs | 12.5% (no indexation) | Added to income, taxed at slab | 2 years |
| International ETFs (Nasdaq 100, S&P 500) |
12.5% (no indexation) | Added to income, taxed at slab | 2 years |
| Liquid/Debt ETFs | 12.5% (no indexation) | Added to income, taxed at slab | 2 years |
Tax Hacks for ETF Investors
1. Harvest LTCG up to ₹1.25L annually: Sell ETF units after 1 year, book ₹1.25L profit (tax-free), rebuy immediately. Repeat every year.
2. Set off losses: If you have STCG losses from stocks, offset them against STCG gains from ETFs.
3. International ETFs in India > Direct US stocks: No TDS, no complex FATCA/IRS filing, rupee depreciation benefit.
The 3 ETF Portfolio (For 95% of Investors)
You don't need 20 ETFs. Here's the ONLY portfolio you need:
The Bro Billionaire ETF Portfolio (Low Maintenance, High Returns)
Total Monthly SIP: ₹25,000
Core (70% = ₹17,500):
- ₹12,500 → Nippon Nifty BeES (Nifty 50)
- ₹5,000 → Nippon Junior BeES (Nifty Next 50)
International (20% = ₹5,000):
- ₹5,000 → Motilal Nasdaq 100 ETF (US tech giants)
Hedge (10% = ₹2,500):
- ₹2,500 → Nippon Gold BeES (inflation hedge)
Expected Returns: 14-16% CAGR over 10+ years
Effort Required: 1 hour per year (rebalance if allocation drifts by 10%+)
Total Expense Ratio: 0.15% weighted average (vs 1.5% for active mutual funds)
20-Year Projection:
₹25,000/month SIP at 15% CAGR = ₹3.78 crore
Same in active mutual funds (13% after 1.5% fees) = ₹2.94 crore
ETFs save you ₹84 lakhs over 20 years.
ETF Trading Strategies (Beyond Buy & Hold)
Strategy 1: The Tactical Rebalancer
Your 60-30-10 allocation (Nifty 50 - Next 50 - Gold) will drift over time.
If Nifty 50 rallies 40% in a year, it becomes 70% of your portfolio. Time to sell some, buy Gold/Next 50.
Rule: Rebalance when any asset drifts 10%+ from target allocation.
Strategy 2: The Crash Buyer
Keep 10-20% cash. When Nifty drops 15%+, deploy 50% of cash into Nifty BeES. If it drops 25%+, deploy remaining 50%.
Historical data: Buying Nifty 50 during 15%+ crashes has delivered 80%+ returns in next 2 years (COVID, 2011, 2008).
Strategy 3: The Sector Rotator
Money rotates between sectors based on economic cycles:
- Early Recovery: Buy Bank Nifty ETF (banks lead rallies)
- Mid Cycle: Buy IT ETF (earnings acceleration)
- Late Cycle: Buy Gold ETF (inflation hedge)
- Recession: Buy Pharma/Consumer ETFs (defensive sectors)
Warning: This requires macro understanding. Beginners should stick to buy-and-hold.
Top 5 ETF Mistakes (That Cost You ₹Lakhs)
Mistake #1: Trading Low-Liquidity ETFs
The trap: You find a "cool" sectoral ETF with ₹50 lakh daily volume.
The reality: Bid price = ₹100, Ask price = ₹104. You lose 4% instantly to spread.
Solution: Only trade ETFs with ₹10+ crore daily volume (Nifty BeES, HDFC Nifty, Gold BeES).
Mistake #2: Ignoring Tracking Error
The trap: Your Nifty 50 ETF returned 12.2% while Nifty 50 returned 13.1%.
The reality: High tracking error (0.9%) ate your returns. Fund manager isn't rebalancing properly.
Solution: Choose ETFs with tracking error <0.1% (check factsheets on AMC website).
Mistake #3: Paying Brokerage to "Advisors"
The trap: Your advisor suggests buying ETFs through his "special platform" (charges 1% commission).
The reality: ETFs are meant to avoid commissions. Buy directly on Zerodha/Groww (₹0-20 per order).
Mistake #4: Panic Selling During Crashes
The trap: Nifty crashes 20%. You sell your Nifty BeES to "protect capital."
The reality: You locked in losses. Index recovers in 6 months, you're sitting in cash earning 4%.
Solution: Never sell ETFs during crashes. BUY MORE instead (that's when you get discounts).
Mistake #5: Over-Diversifying with Sector ETFs
The trap: You own 10 sector ETFs (IT, Pharma, Banks, Auto, Energy, etc.).
The reality: You've recreated Nifty 50 at 5x the cost. Just buy Nifty 50 ETF.
Solution: Core portfolio = 1-2 broad ETFs. Satellite = Max 2 sector ETFs (if you have conviction).
ETF FAQs (Questions Retail Investors Actually Ask)
Q: Can I do SIP in ETFs on Zerodha?
A: Yes, via Zerodha Coin app. Set up automated monthly purchases. Or manually buy ETFs every month on Kite.
Q: Are ETFs safer than mutual funds?
A: Same risk (both hold the same stocks). ETFs are cheaper (lower expense ratio) and more transparent (real-time holdings).
Q: What is the minimum amount to invest in ETFs?
A: 1 unit price. Nifty BeES = ₹250, Gold BeES = ₹60. You can start with ₹500.
Q: Can I sell ETFs anytime?
A: Yes, during market hours (9:15 AM - 3:30 PM). Sell like stocks on NSE.
Q: Which is better — Nifty 50 ETF or Nifty 50 Index Fund?
A: ETF if you want lower costs (0.05% vs 0.2%+) and real-time trading. Index fund if you want fully automatic SIP.
Q: Do ETFs pay dividends?
A: Yes, when underlying stocks pay dividends. Credited to your bank account. Taxed at your income slab.
Q: Best broker for ETF investing in India?
A: Zerodha (₹20 per order), Groww (₹0 on delivery), Upstox (₹20 per order). All have zero account maintenance fees.
Q: Can NRIs invest in Indian ETFs?
A: Yes, through NRE/NRO demat accounts. Same process as stocks. Repatriation allowed.
The Final Word: Why ETFs Are the Future
In the US, ETFs have ₹50 trillion in assets. In India? ₹8 lakh crore (just 5% of mutual fund AUM).
Why? Because wealth managers still push mutual funds (they earn commissions). Banks don't educate customers (no incentive).
But the smart money is shifting. SEBI data shows ETF inflows grew 220% from 2021 to 2026.
The Bro Billionaire ETF Manifesto
- ETFs are cheaper, more transparent, and more flexible than mutual funds
- Index ETFs (Nifty 50, Nasdaq 100) beat 85% of active managers over 10+ years
- You don't need 20 ETFs. 3-4 broad ETFs = complete portfolio
- Always choose high-liquidity ETFs (₹10+ crore daily volume)
- Buy during crashes, hold for decades, ignore noise
If I could only give ONE piece of investing advice:
Start a ₹10,000/month SIP in Nifty 50 ETF today. Add to it every month for 20 years. Retire rich.
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