Learn what a Nifty ETF is, how it works, its types, benefits, risks, and how investors can use it for market-linked exposure.
Last updated on: February 05, 2026
A Nifty ETF is an investment product that allows investors to track the performance of the Nifty 50 index by investing in a single instrument. It combines the diversification of an index fund with the trading flexibility of a stock, making it a widely used option for passive investing in the Indian equity market.
A Nifty ETF, or Nifty 50 Exchange Traded Fund, is designed to replicate the performance of the Nifty 50 index, which represents the 50 largest and most liquid companies listed on Indian stock exchanges. The ETF holds the same stocks as the index in the same proportion, ensuring that its returns closely mirror the index’s movement.
Nifty ETFs are listed and traded on stock exchanges just like shares. Their prices fluctuate during market hours based on the net asset value (NAV) and market demand and supply. When the Nifty 50 rises or falls, the value of the Nifty ETF generally moves in the same direction.
There are different types of Nifty ETFs available to suit varied investor preferences and risk profiles. Each type tracks a specific segment or strategy within the broader Nifty universe.
Common types of Nifty ETFs include:
Standard Nifty 50 ETFs
These ETFs directly track the Nifty 50 index, which includes the major 50 large-cap companies listed on the NSE. They provide exposure to large-cap companies included in the Nifty 50 index, which are among the most actively traded stocks on the NSE.
Nifty Next 50 ETFs
These track the next set of large-cap companies ranked just below the Nifty 50. The index includes stocks that may exhibit higher price volatility compared to the Nifty 50.
Sector-specific Nifty ETFs
These ETFs focus on specific sectors such as banking, IT, FMCG, or energy within the Nifty framework. They provide exposure to specific sectors represented within the Nifty index framework.
Factor-based Nifty ETFs
These follow rule-based strategies such as low volatility, quality, value, or equal weighting instead of market-cap weighting. The aim is to capture specific investment factors rather than overall market movement.
Each type provides exposure to a different segment of the broader Nifty ecosystem, reflecting variations in index composition and weighting methodology.
Nifty ETFs has several features:
Provide instant diversification across 50 major companies
Lower expense ratios compared to actively managed funds
Transparent portfolio aligned with the Nifty 50 index
Can be traded on stock exchanges during market hours
Commonly used for passive, long-term market-linked exposure
These features make Nifty ETFs accessible and efficient for many investors.
Despite their simplicity, Nifty ETFs carry certain risks:
Market risk due to fluctuations in the Nifty 50 index
Tracking error, where returns may slightly differ from the index
Liquidity risk in ETFs with lower trading volumes
No downside protection during market corrections
These risks form part of the characteristics of Nifty ETFs.
Both options track the same index but differ in structure and accessibility as highlighted below:
| Aspect | Nifty ETF | Nifty Index Fund |
|---|---|---|
Trading |
Bought and sold on stock exchanges |
Purchased from fund house |
Pricing |
Changes throughout the trading day |
Based on end-of-day NAV |
Demat Requirement |
Required |
Not required |
Expense Ratio |
Generally lower |
Slightly higher |
Flexibility |
High intraday flexibility |
Limited to NAV-based transactions |
Trading mechanism of Nifty ETF involves a clear procedural process:
A demat and trading account is required with a registered intermediary.
Transactions depend on available funds in the linked bank account.
Nifty ETFs are located via the stock exchange or trading platform.
Orders are executed during market hours at prevailing exchange prices.
ETF units are recorded in the demat account after settlement.
The process is similar to what is used for equity shares.
Taxation on Nifty ETFs follows equity-oriented fund rules:
Short-term capital gains apply if units are sold within one year.
Long-term capital gains apply if units are held for more than one year.
Dividends, if any, are taxed as per applicable income tax rules.
Tax treatment may vary based on holding period and individual tax status.
Nifty ETFs offer a simple and cost-effective way to gain exposure to India’s major companies through a single investment. They are often accessed by investors seeking passive returns linked to the broader market, with the flexibility of stock-like trading. Understanding their structure, risks, and taxation helps investors use Nifty ETFs more effectively as part of a diversified portfolio.
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.
Reviewer
Minimum investment in a Nifty ETF is typically equal to the market price of one unit on the stock exchange. The unit price changes during trading hours based on demand, supply, and movements in the underlying index.
Purchase of a Nifty ETF requires a demat account because ETF units are held and traded electronically on stock exchanges. Transactions are settled like equity shares, making a trading and demat account necessary for ownership and settlement.
Nifty ETFs may receive dividends from constituent stocks in the index. Depending on the ETF structure, these dividends can either be distributed to unit holders or reinvested within the fund, which may affect the unit value over time.
A Nifty ETF is traded on stock exchanges throughout the day at market prices, while a Nifty index mutual fund is bought or redeemed directly with the fund house at end-of-day Net Asset Value.