


- ETFs offer a lot of convenience: They are passively managed by a fund manager, so the burden to manage your investment and time the market is off you.
- ETFs are highly liquid: ETFs can be bought and sold at any time of the day. They are ideal if you are in a financial emergency and need immediate funds.
- ETFs can help you lower portfolio risk: You can take care of your portfolio’s diversification needs by adding ETFs. ETFs are great at diversification. However, keep in mind that they are still susceptible to market volatility.
- ETFs may have a lower expense ratio: ETFs can be a cost-effective investment option with lower expense ratios than most mutual funds.

- Dividends: Any dividend earned is added to your taxable income for the year and taxed per the tax slab you fall into.
- Capital gains: Capital gains are taxed according to the type and duration of the fund. Equity ETFs are levied long term capital gains (LTCG) tax on earnings in excess of Rs. 1 lakh per annum at the rate of 10% for funds held for longer than a year. Short term capital gains (STCG) on equity ETFs are taxed at 15% for funds held for a year or less.
- All other ETFs like debt, gold, etc., are taxed like debt funds. LTCG for funds held for longer than three years are taxed at 20% with indexation benefits. STCG tax is levied on profits from funds held for three years or less. Like dividends, these earnings are added to your taxable income for the year and taxed accordingly.
Frequently Asked questions
1. How are ETFs different from mutual funds in India?
ETFs are traded on stock exchanges like shares and typically have lower expense ratios, while mutual funds are bought or redeemed through fund houses and may involve higher management fees.
2. Can ETFs be used for long-term wealth creation in India?
Yes, ETFs can be a good option for long-term wealth creation as they offer diversification, low costs, and exposure to a wide range of sectors or indices.
3. Are ETFs suitable for first-time investors in India?
ETFs can be suitable for beginners due to their simplicity, low costs, and transparency. However, investors should understand how the stock exchange works to trade ETFs effectively.
4. What are the most popular indices tracked by ETFs in India?
Commonly tracked indices by Indian ETFs include the Nifty 50, Sensex, Nifty Next 50, and sectoral indices like Nifty IT and Nifty Bank.
5. How do sectoral ETFs work in the Indian market?
Sectoral ETFs focus on specific industries, such as technology or banking, offering concentrated exposure to that sector’s performance.
6. Do ETFs in India pay dividends?
Yes, some ETFs distribute dividends to investors if the underlying securities in their portfolio pay dividends. Investors can also opt for growth-based ETFs that reinvest earnings.
7. How does liquidity affect ETF trading in India?
Liquidity in ETFs depends on the trading volume and the market-making mechanism. Highly traded ETFs like Nifty ETFs generally have better liquidity, reducing the bid-ask spread for investors.
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