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Exchange-Traded Funds (ETFs) have gradually gained traction in India over the past decade, especially among investors seeking low-cost, diversified, and transparent market exposure. Traded like stocks, ETFs aim to replicate the performance of an index or asset class, and come in several varieties — including equity, debt, gold, and thematic ETFs.
This article analyses how different ETF categories have performed in the Indian market, while explaining what makes each type unique for retail and institutional investors.
ETFs are investment funds that trade on stock exchanges and aim to mirror the performance of a benchmark index, commodity, or a group of assets.
Listed and traded like regular stocks
Offer instant diversification
Usually have a low expense ratio compared to mutual funds
Passive in nature (most track an index)
In India, ETFs are regulated by SEBI and have been popularised through government initiatives and institutional participation.
These track equity indices like NIFTY 50, Sensex, NIFTY Next 50, and sectoral indices.
Examples include:
NIFTY 50 ETF
NIFTY Bank ETF
Sensex ETF
NIFTY IT ETF
Performance Overview:
Equity ETFs have largely mirrored the underlying index performance, with tracking error being a key consideration. Over the last 5 years, NIFTY 50 ETFs have returned approximately 11–13% CAGR, closely tracking index movements.
Best suited for:
Long-term investors seeking broad market exposure
Passive investors preferring index performance over active management
Gold ETFs invest in physical gold or gold-linked assets and are benchmarked to the domestic price of 24K gold.
Performance Overview:
Gold ETFs gained popularity during periods of market uncertainty. From 2020 to 2022, these funds offered annualised returns of 13–17%, driven by global risk-off sentiment and rising inflation.
Ideal for:
Diversifying portfolio risk
Acting as a hedge against inflation and currency depreciation
These track government bonds, PSU bonds, or fixed-income indices.
Examples include:
Bharat Bond ETF
Liquid ETFs
PSU Debt ETFs
Performance Overview:
Debt ETFs like Bharat Bond ETF (with 5–10 year maturity) have delivered returns in the range of 6–7% annually, depending on interest rate cycles. They offer stability but are sensitive to rate changes.
Suited for:
Conservative investors
Those looking to ladder fixed-income returns over time
These offer Indian investors exposure to global indices such as Nasdaq 100 or S&P 500.
Performance Overview:
International ETFs have seen mixed results. While the Nasdaq 100 ETFs surged during the tech rally between 2019 and 2021, they experienced volatility in 2022 due to rising US interest rates.
Returns (2019–2023 range):
Nasdaq 100 ETF: ~14–18% CAGR (with recent volatility)
Best for:
Portfolio diversification
Exposure to global tech and healthcare giants
These focus on specific sectors such as banking, pharma, FMCG, or ESG (environmental, social, governance) themes.
Performance Overview:
These ETFs are inherently more volatile. For example:
NIFTY Bank ETF outperformed broader indices during banking sector rallies
Pharma and FMCG ETFs remained resilient during market downturns
Suited for:
Tactical asset allocation
Investors with sectoral insights
The table below provides a comparative view of how different ETF categories have performed over the past five years, based on average CAGR and associated risk levels:
| ETF Category | Approx. Return (%) | Risk Level |
|---|---|---|
NIFTY 50 ETF |
11–13% |
Moderate |
Gold ETF |
10–12% |
Moderate–High |
Bharat Bond ETF |
6–7% |
Low |
Nasdaq 100 ETF |
14–18% |
High |
Sectoral ETFs (Banking) |
12–15% (volatile) |
High |
Note: Returns vary by fund house and rebalancing frequency. Past performance is not indicative of future results.
Several key factors shape how well an ETF performs, beyond just the index it follows:
The ETF’s returns are directly tied to the performance of the index it replicates.
The smaller the difference between ETF and index returns, the better the tracking. High tracking error can hurt returns.
Though ETFs generally have lower costs, differences in fund management and tracking method can affect net returns.
Heavily traded ETFs offer better price discovery and tighter spreads. Thinly traded ones may have poor liquidity and execution delays.
India’s ETF market has seen rapid expansion, driven by institutional demand and growing retail participation:
As of mid-2023, over ₹6 Lakh Crores were invested in ETFs in India
The EPFO has been a major institutional participant in equity ETFs
Retail interest is rising due to low costs and increased financial literacy
New launches include thematic ETFs (EV, ESG), global indices, and hybrid asset classes
The performance of ETFs in India reflects their growing importance as a passive investment tool. Whether you prefer equity exposure, gold hedges, or stable debt returns, there’s likely an ETF suited to your portfolio. However, it's important to understand each ETF’s structure, risk factors, and underlying benchmark before investing. With consistent growth and increasing variety, ETFs are becoming a staple in the portfolios of informed Indian investors.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
ETFs are simple, low-cost instruments that mirror market indices, making them ideal for new investors.
They are taxed like mutual funds — equity ETFs attract short-term capital gains tax (15%) or long-term (10%) after one year, based on holding period.
Some ETFs distribute dividends, while others reinvest them. Check the specific fund details.
Yes, many brokers now allow SIP-style investments in ETFs through their platforms.
You can start with as low as one unit’s price — typically ranging from ₹50 to ₹1,000 or more depending on the ETF.
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Posted on 19 Dec
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