India’s ETFs are coming of age

ETFs have a long history in India, with the first product of its kind starting to trade in 2002¹. Since then, there has been steady growth and they have gained prominence in investor portfolios, thus becoming a mainstay of the country’s fund ecosystem – managing USD 119.8 billion worth of assets across more than 300 products as of March 2026².

But much of the growth has happened in the last few years, with non-gold ETF AUM growing by 14.8% over the last year, and 84.7% over the previous three years³.

And with ETFs currently only accounting for around 14% of total fund assets⁴, compared to 29% globally in 2025⁵, here may be scope for further market development over the medium to long term.

Growing Indian interest towards ETFs can be understood as part of an Asia-wide trend towards passive investment products, as seen in the region’s other markets – such as China, South Korea, and Taiwan.

“India’s ETFs are coming of age,” said Conor Hession, Global Head of Fund Accounting & ETF Services, HSBC.“It is a market that is likely to be of interest to international asset managers looking to issue ETFs.”

There is a fundamental shift happening India, as individuals are relying less on traditional saving accounts and paying more attention to different investment outcomes available through the stock market.

The size of the retail market can be measured in the number of trading accounts, of which there are 216 million⁶, representing around 15% of the country’s population.

And the rate of change is dramatic. In the five-year period since the pandemic, the total value of individual investor holdings in National Stock Exchange of India-listed companies grew at an annualised rate of 34%⁷, and the effective share of individuals have of the stock market is 18.5%⁸

As retail investors learn about the diversification and cost features of ETFs, creating opportunities for issuers that can deliver the right products to this emerging investor base.

The surge in retail investor activity is already shaking up the local ETF market, where demand has long been driven by institutional investors – primarily pension funds. Retail and high-net-worth investors currently hold around 25% of ETM AUM⁹.

Investor access is enabled by digitalisation. It is a mobile-first market, with app-based brokers serving around 80% of all retail investors¹⁰. This is a natural consequence of India’s young population, which has grown up using smartphones as the main access point to the internet.

Ease of access has also helped spread market participation more broadly across the country, beyond the biggest cities that were the traditional centres of wealth, to a more diverse range of up-and-coming urban areas.

In short, Indian investors are digitally-savvy and more geographically dispersed than ever before. Understanding these two key factors of the market will be crucial for issuers designing and marketing ETFs that target the country’s retail investors.

India’s shift towards passive investment also comes from the fact that active managers investing in large caps find it increasingly hard to beat the benchmark thus raising questions on the fees charged.

This lack of reliable alpha favours passive strategies that provide market exposure, generally with lower fees than actively managed funds.

Competition in the sector is intense, as new tech-first passive-only asset managers enter the market. Their low costs are forcing their counterparts with a bricks and mortar business model to cut their own expense ratios in order to remain competitive. They are all fighting for the attention of the new generation of digital investors, for whom ETFs have become a commonly used longer-term investment vehicle.

In terms of product, strong demand for ETFs is shifting the field of competition away from a handful of established funds that track the benchmark Nifty 50 and hold the lion’s share of industry AUM towards more sophisticated smart beta solutions.

Popular strategies include smart beta ETFs, with momentum and low-volatility products used by some high-net-worth individuals seeking passive market exposure. There is also robust demand for Target Maturity Funds – open-ended passive debt funds that track an index of highly liquid assets, that are an alternative to close-ended, actively managed Fixed Maturity Plans.

Gold ETFs deserve special mention. The precious metal has a long history as a key store of value in India, used by some investors as part of broader portfolio diversification, including during periods of inflation concern. There are similar dynamics for silver-backed products.

HSBC has operated in India for nearly 160 years and has provided custody services in the country since 1993, alongside clearing and fund administration. HSBC’s offering combines deep local market expertise with our global capabilities to deliver solutions to issuers.

Two recent mandates to service assets of a domestic and international issuer demonstrate our strengths serving ETF issuers in India. The domestic asset manager is moving its products onto our platform, while the international issuer has also selected HSBC as its fund administrator to use our solutions in the market.

Each company benefits from a different aspect of our capabilities. The global firm is able to manage their Indian products on the same established platform that they use to oversee their products in other markets. The domestic asset manager benefits from our knowledge of global operating practices.

HSBC’s recent success in winning new ETF clients in India reflects the development of our offering. The team looks forward to working with more issuers as the Indian market continues to grow and sophistication over the coming years.