According to data from ETFGI, global Exchange-Traded Funds recorded a historic $620.54 billion in net inflows during the first four months of 2025, surpassing the $467.69 billion inflow in the same period last year and reflecting deepening investor trust in ETF structures.

In India, too, ETF investing has gained strong attraction. By the end of FY25, the total size of the Indian ETF market had grown to ₹8 trillion. Trading volumes in ETFs that track NSE indices rose sharply, reaching ₹3.8 trillion in FY25 compared to ₹1.8 trillion in FY24. This jump occurred at a time when stock markets were experiencing more volatility, prompting investors to seek safer and more balanced investment options.

More people are now entering the ETF space. The number of investment accounts linked to ETFs rose by 43% during the year, showing that awareness and interest in passive investing are clearly growing. Nearly 50 new ETFs were introduced in FY25, providing investors with a wider range of choices across equity, debt, and sector-based themes.

Supporting this trend, April 2025 saw ETFs in India record their highest-ever monthly inflows, according to AMFI. Total net inflows reached ₹19,056 crore, primarily driven by equity ETFs. This momentum pushed the assets under passive funds to ₹11.91 lakh crore, reflecting a 3.9% increase from the month before.

Several factors are contributing to the rapid growth of ETFs in India:

ETFs, particularly Nifty 50 ETFs like Nifty BeES, offer significantly lower expense ratios (often less than 0.1%) compared to actively managed mutual funds. This makes them an attractive option for investors looking to minimize costs while gaining exposure to India's top companies.

Given the increasing market swings, ETFs have become a preferred option for those seeking diversified investments with lower risk. Nifty 50 ETFs offer broad exposure to India's largest companies, helping investors participate in growth while managing volatility.

The growing use of mobile apps and online platforms has made ETF investing more accessible, especially for first-time investors. In April 2025 alone, the mutual fund industry added 17.87 lakh new folios, increasing the total to 23.63 crore, with a significant share of this growth coming from passive funds such as ETFs and index funds.

In India, recent regulatory changes and updates to the tax regime have had a noticeable impact on ETF investments. The Budget FY25 introduced the removal of indexation benefits for debt mutual funds and raised capital gains tax rates on equity mutual funds. These shifts have made ETFs, particularly index and sectoral ETFs, a more appealing choice for investors seeking tax-efficient investment options.

Here is what investors need to know before investing in ETFs.

In a market marked by volatility and shifting sector trends, diversifying your portfolio with equity, fixed income, and commodity ETFs can help balance risk while capturing growth opportunities.

Though ETFs are generally cost-effective, expense ratios and bid-ask spreads differ among funds. Choose ETFs with high trading volumes and narrow spreads to ensure smooth and cost-efficient trading.

Tracking error, the difference between ETF performance and its benchmark index, can affect returns. Opt for ETFs with low tracking error for more accurate index replication.

Incorporating thematic and international ETFs can reduce home-country bias and allow you to benefit from global growth trends, especially as market dynamics change worldwide.

In summary, ETFs have become central to investment strategies in India. Growing inflows, a wider range of products, and favourable regulatory developments have all contributed to their rising popularity, which is likely to continue in Q2FY2026. For investors seeking a balance of cost-effectiveness, liquidity, and diversification, ETFs offer a reliable way to manage market uncertainties and capture potential growth.