ETF (Exchange Traded Fund)
An Exchange Traded Fund (ETF) is a SEBI-regulated investment fund that holds a portfolio of assets (stocks, bonds, gold, etc.) and trades on stock exchanges like a regular share, with prices fluctuating throughout the trading day.
Understanding ETF (Exchange Traded Fund)
ETFs work like a hybrid: structurally they are mutual funds (a pool of underlying assets), but operationally they trade like stocks. The Authorised Participant (typically a market maker) creates and redeems units in large blocks to keep the ETF's market price aligned with its NAV.
India's ETF market spans equity (Nifty 50 ETF, Nifty Next 50 ETF, sectoral ETFs), debt (Bharat Bond ETF), gold (Gold ETFs), and international (Hang Seng ETF, Nasdaq 100 ETF). Liquidity varies — Nifty 50 ETFs trade with crore-rupee volumes daily, while sectoral and international ETFs may have wider bid-ask spreads.
Why it matters
ETFs offer the cheapest possible Indian equity exposure (Nifty ETFs at 0.05% expense ratio vs index funds at 0.20% vs active funds at 1.5%). They also enable tactical trading and intraday allocation changes that mutual funds cannot. The trade-off: you need a Demat account and pay broker brokerage on each transaction — making ETFs better for lump-sum or large-ticket investing than for small monthly SIPs.
Example
You buy 100 units of Nippon India Nifty 50 ETF at ₹250/unit (paying ₹25,000) through Zerodha. The ETF holds the Nifty 50 stocks in their index weights. As Nifty rises during the day, your ETF price rises in real-time. You can sell anytime during market hours at the prevailing market price — unlike a mutual fund which prices once daily at end-of-day NAV.
You buy 100 units of Nippon India Nifty 50 ETF at ₹250/unit (paying ₹25,000) through Zerodha. The ETF holds the Nifty 50 stocks in their index weights. As Nifty rises during the day, your ETF price rises in real-time. You can sell anytime during market hours at the prevailing market price — unlike a mutual fund which prices once daily at end-of-day NAV.