Are there advantages of ETFs over mutual funds in India?

ETFs offer lower costs and intraday trading, but the article notes that liquidity gaps and regulatory constraints like stock-lending rules limit their effectiveness. NAV tracking issues and the absence of SIP-friendly structures further hinder adoption.

Should I invest in ETFs or mutual funds?

ETFs provide transparency and lower fees, but mutual funds may still be preferable in India due to liquidity risks and regulatory barriers. The article emphasizes that ETFs haven't 'clicked' here, with price deviations from NAV and market maker inefficiencies complicating returns.

[Podcast] Exchange Traded Funda: How ETFs Work

In this episode, Deepak and Shray get into the weeds on all things Exchange Traded Funds — what they are, how they work, where they don’t work, and why, despite sounding like the next great revolution in investing, they haven’t quite clicked here yet.

11 Apr 2025CM Team2 min read

Quick Facts

Why haven't ETFs exploded in India despite our obsession with stocks?: The article highlights regulatory hurdles, liquidity challenges, and market structure differences as key barriers. SEBI regulations and the lack of deep liquidity in Indian markets prevent ETFs from mirroring US success, with Market Makers struggling to maintain narrow bid-ask spreads.
Are there advantages of ETFs over mutual funds in India?: ETFs offer lower costs and intraday trading, but the article notes that liquidity gaps and regulatory constraints like stock-lending rules limit their effectiveness. NAV tracking issues and the absence of SIP-friendly structures further hinder adoption.
Should I invest in ETFs or mutual funds?: ETFs provide transparency and lower fees, but mutual funds may still be preferable in India due to liquidity risks and regulatory barriers. The article emphasizes that ETFs haven't 'clicked' here, with price deviations from NAV and market maker inefficiencies complicating returns.

ETFs have taken over the world, or at least that’s what you’d believe if you spent any time reading financial media in the US. Passive investing! Low costs! No fund manager egos! And of course, that looming prediction: “ETFs will destroy price discovery!”

But in India? Crickets. While ETFs have become mainstream in the US, with trillions of dollars flowing into passive investing strategies, India’s ETF story is still unfolding. Why haven’t ETFs exploded in India despite our obsession with stocks? And more importantly, should you be investing in ETFs or mutual funds?

00:00:00 - Introduction

00:02:01 - How big are ETFs?

00:07:30 - Why are ETFs so successful in the US

00:09:42 - How do ETFs work?

00:13:52 - Isn’t it better to move into ETFs then?

00:16:01 - Who are you buying the ETF from?

00:20:08 - Are there any advantages in ETFs over MFs in India?

00:25:10 - What role do Market Makers play in ETFs?

00:30:12 - When and why do ETF prices trade above their NAV?

00:39:14 - Role of liquidity in ETF prices

00:42:06 - Why don’t people do SIPs into ETFs and Stocks?

00:48:44 - How are ETFs useful for investors?

00:53:17 - What about Commodity ETFs?

00:55:47 - What about Liquid ETFs?

00:59:52 - How do regulations like stock-lending and free-float impact ETF returns?

01:04:53 - What are Deepak’s thoughts about Active ETFs?

01:07:06 - Will ETFs gain market share from Mutual Funds?