Exchange Traded Funds (ETFs) are a type of index funds that track a basket of securities. It is a pooled investment security that can be bought & sold like an individual stock. They are designed to track assets such as stock indices, commodities, etc. They are traded on exchange throughout the day, unlike mutual funds which trade only once daily after the market closes. 

ETFs provide diversification benefits due to exposure to a broad range of securities and thereby reduce risks as compared to individual stocks. ETFs can be easily bought or sold during market hours, providing adequate liquidity. 

ETFs have lower expense ratios as compared to any actively managed mutual funds and even lower than index funds. 

Consider some of the following while selecting an ETF from wide range of options available in the market. 

• Decide on asset class (equity, debt, commodity) and allocate appropriate weight in your portfolio
• Consider diversification. Decide if you want broad exposure or specific market segments, industries or investment themes as an underlying
• Research the ETFs options available in the market to invest
• Consider assets under management (AUMs), trading volume, expense ratio, tracking error, historical returns (for idea or context), issuer reputation or specific investment themes
• One can tailor ETF selection basis individual needs and investment goals

India’s ETF journey dates back to 2002 when the first ETF, based on the Nifty 50 index was launched by Nippon India Mutual Fund (formerly Benchmark Asset Management Company Limited). The AUMs of ETFs in India have grown significantly. As of 2024, India boasts 141 equity ETFs and 24 debt ETFs. 

ETFs in India have gained popularity due to their cost effectiveness, liquidity and ease of trading. Making it a versatile investment choice, whether for beginners or experienced investors. In the financial year 2024, the trading volume of ETFs on National Stock Exchange (NSE) of India exceeded Rs1.19 trillion. 

Globally, ETF assets exceed $10.5 trillion. In many developed countries, ETF assets account for more than 50% of mutual fund assets. India’s ETF market contributes significantly to global landscape, reflecting the growing importance in investment ecosystem. Each BRICS nation will have ETFs in their respective countries to invest in India. These ETFs will be offered by various investing companies.