A Comprehensive Guide to Exchange Traded Funds (ETFs) in India
Mutual Funds in India have been around for a very long time. The first mutual fund in India was launched in 1964[a]. With time as the industry evolved, the number of MFs increased over the years, with many foreign sponsors setting up mutual funds in India. [b] Since May 2014, the Industry has witnessed steady inflows and increase in the AUM as well as the number of investor folios (accounts). [c]As of Jan 2025, we have over 1,500+ mutual fund schemes and over 22.9 crore investor accounts in India.
Over time, the financial landscape saw further innovation in how these diversified investment portfolios were structured. This evolution led to the emergence of Exchange-Traded Funds (ETFs).
All together: ETFs are baskets of assets that trade on an exchange, much like an individual stock does. These baskets may track a wide range of indices/commodities such as the Nifty 50 or Gold/Silver etc.
An ETF is a mutual fund scheme that trades like a stock on a stock exchange. If you are already invested in ETFs or just curious about Indian ETFs - this is for you. We want to help you with everything you need to know about ETFs with relevant context and insights.
Why should I invest in ETFs - when I can invest in stocks and other mutual funds?
We hear very often that equities are the preferred avenue for creating long term wealth and thereby preserve the purchasing power of currency by beating inflation.
For many among us the well-known method of investing in equities as an asset class is via researching individual companies. This could be achieved through a combination of various techniques such as going through Annual Reports of companies that look good, taking advice of peers, financial experts and so on and so forth. However, very often the experience of many investors who have tried their luck at stock picking isn’t all that encouraging. This is because consistently trying to find a great company is akin to looking for needles in a haystack! Sometimes it almost seems like an exercise in futility, as the endeavour of consistently identifying winning stocks is easier said than done.
Passive investing such as investing in ETFs mitigates a major risk of investing i.e., the nonsystemic risk – fund manager and stock specific risks. These additional risks may not necessarily result in a higher expected return over indices. Majority of the actively managed funds have underperformed the benchmark in India.
[6]As per the SPIVA 2024 year end report, such underperformance is observed for both the equity-largecap category and the equity-mid/smallcap category as shown below:
ETFs: Widely Recognized Investment Options?
Globally ETFs have captured significant market interest. [1] Globally, a record US$1.9 trillion was invested in ETFs in 2024. As of the end of Apr 2025 [2], there were over 14,000 ETFs listed globally, and total ETF assets under management (AUM) was more than $15 trillion.
Wait a minute, what about ETFs in India?
India's ETF market, though still in its early stages, demonstrates significant growth and future potential. Here’s a snapshot of ETFs both in India and the world.
Source:
Total ETF Size and total number of ETFs in India - Apr 2025 → AMFI Apr2025
Total ETF Size and total number of ETFs in the world - Apr 2025 → ETFGI
Conversion from USD to INR taken as of Apr 30, 2025 → Source
Journey of ETFs in India
India's ETF market, though still in its early stages, demonstrates significant growth and future potential. The first ETF in India, an equity ETF, was introduced in 2002[3]. Over time, the availability of ETFs expanded to include other asset classes like debt and commodities.
Regulatory developments have further supported the growth of ETFs, notably the Budget 2013[4] decision allowing the Employee Provident Fund Organization (EPFO) to invest in them, although actual investments began in August 2015[5].
[3] Now the EPFO invests regularly in Equity markets through ETFs replicating BSE-SENSEX and NSE NIFTY-50 indices. In addition, EPFO has also invested from time-to-time in ETFs constructed specifically for disinvestment of shareholding of the Government of India in body corporates, namely ETFs tracking Bharat 22 and CPSE Indices[5].
The year-wise investments made by EPFO in ETFs is rising consistently for the last 8 years. [5]The total corpus of various funds managed by EPFO was Rs. 24.75 Lakh Crore as on Mar 2024.The increasing participation of large institutional investors like EPFO has been instrumental in the market's expansion, evidenced by the consistent rise in both AUM and the number of investor folios over the years. [6]As of May 2025, ETFs had an AUM of nearly Rs. 9 lakh Cr with about 260 schemes across different asset classes.
Here is a brief snapshot of the ETF journey below:
What does the penetration of ETFs in India look like?
The penetration of Exchange Traded Funds (ETFs) in India has steadily increased, although it is still lower compared to more developed markets like the United States. Here's a detailed look:
Overall ETF AUM - Up By More Than 5x in 5 years:
The total Assets Under Management of ETFs have grown by close to 5.5x over the last 5 years from Mar 2020 to Mar 2025[7]. The sustained growth over five years highlights not just a single year of positive performance but a consistent trend in the ETF market. This expansion likely has broader implications for capital markets, asset allocation strategies, and the investment landscape as a whole.
AUM Share of ETFs - Nearly Doubled in 5 Years:
As of March 2025, Exchange Traded Funds (ETFs) represent a noteworthy and expanding segment of the Indian mutual fund industry. These instruments held approximately ₹8.38 lakh crore in Assets Under Management (AUM), constituting about 13% of the total AUM of the Indian mutual fund industry, which stood at ₹65.74 lakh crore. In March 2020, ETFs accounted for roughly 7% of the total Indian mutual fund AUM. The near doubling of the ETF share within the total AUM reflects a sustained interest in these passive investment vehicles, suggesting a maturing and evolving investment landscape.
Total number of ETFs - Up By Nearly 3x In 5 Years:
The ETF landscape in India has witnessed substantial expansion in this period. The near tripling of the total number of ETFs available in India reflects a significant increase in the variety of investment instruments. This expansion includes the introduction of new commodity ETFs like silver ETFs in 2022, broadening the options available to investors.
Retail Investor AUM - Up by more than 3x:
The retail AUM has more than tripled in 5 years. As of March 2020, the retail investor AUM was about 5,335 Cr. After 5 years, as of March 2025, the AUM has crossed more than 17,800 Cr.
Retail ETF Folios - Up By More Than 11x:
The number of retail investor folios (accounts) in ETF schemes has seen significant growth, reaching about 2.63 crore as of March 2025, a substantial rise from 23.22 lakh in March 2020 - more than tenfold expansion in retail participation. Also as of Mar 2025, more than 97% of all ETF investor folios are from the retail segment. This retail interest suggests a broadening awareness and understanding of ETFs as an investment avenue suitable for various financial objectives and risk tolerances.
- Trading Volumes have more than doubled in a year:
The trading volume of ETFs in India has increased dramatically, from ₹51,101 crore in FY 19-20 to ₹3.83 lakh crore in FY 2024-25, marking an increase of more than 7 times. In fact it has also more than doubled in the last 1 year. Higher liquidity is a significant advantage for investors, as it generally allows for smoother and more efficient trading. Having said that, trading volume can vary across different ETF asset classes.
- Nearly 80% of the ETF AUM is driven by equity ETFs:
This number has roughly remained around 80% on an average over the last 5 years from Mar 2020 to Mar 2025. The consistent share for Equity ETF AUM indicates a preference for equity investments through the ETF route, highlighting the effectiveness of these instruments for gaining exposure to the stock market.
Positive Net Inflows in ETFs over the last 9 years
Summary and Conclusion:
The Indian ETF market, while still relatively young, has demonstrated growth across multiple dimensions: AUM, investor base, product diversity, and trading volumes. As investors seek lower-cost, tax-efficient, and liquid investment options, ETFs may be positioned to become a core component of the Indian retail and institutional portfolio.
We hope this gives you a comprehensive view of ETFs and its landscape in India. In case you have any questions/suggestions, you can contact us at support@zerodhafundhouse.com
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Published on 30 June, 2025