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Exchange Traded Funds or ETFs are investment instruments that represent a basket of assets, such as stocks, bonds or commodities and are traded on stock exchanges just like individual shares. Most ETFs are designed to track the performance of a specific index such as Nifty 50 or Sensex providing broad market exposure at relatively low costs.
Traditionally, investing in ETFs required lump sum purchases. However, with growing investor interest many platforms now offer the option of investing in ETFs through SIPs (Systematic Investment Plans). SIP in ETFs allows you to invest a fixed amount regularly, monthly or quarterly just like in mutual funds.
This systematic approach brings the benefit of rupee cost averaging and financial discipline while offering the flexibility and transparency of ETFs. As ETFs gain popularity among Indian investors, understanding how SIPs work in ETFs can help you make more informed and consistent investment decisions.
What is ETF (Exchange Traded Fund)?
ETFs function much like individual stocks in the way they are traded on stock exchanges. However, instead of representing a single company, ETF is a basket of various assets such as stocks, bonds or commodities, designed to track the performance of a specific index, sector or theme.
ETFs are passively managed in most cases and aim to replicate the returns of benchmarks like Nifty 50, Sensex or global indices. You can buy and sell ETFs during market hours at real time prices, unlike mutual funds which are priced only once at the end of the trading day.
One advantage of ETFs is their intraday liquidity and price transparency. Their prices fluctuate throughout the trading day based on market demand and supply, making them ideal for longterm investors and shortterm traders.
SIP in ETFs is gaining popularity as it offers disciplined investing with lower expense ratios compared to actively managed mutual funds.
With benefits like diversification, cost efficiency and ease of trading, ETFs have become an increasingly preferred choice in many investors’ portfolios for those seeking market linked returns with greater control and flexibility.
What is SIP in ETFs?
SIP or Systematic Investment Plan is a method of investing a fixed amount at regular intervals usually monthly into a financial instrument. In the context of ETFs SIP allows investors to automate their investments in ETFs through their brokerage account.
While ETFs are traded like stocks, several brokers in India now offer SIP facilities for ETFs. This feature enables you to invest in ETFs in a disciplined manner, without worrying about timing the market. Each instalment is used to purchase ETF units based on the prevailing market price, helping you benefit from rupee cost averaging.
SIP in ETFs combines the benefits of passive investing, low cost and diversification with the convenience of automation. You can start with small amounts, pause or stop anytime and enjoy full control over your investments.
Whether you’re a beginner or a longterm investor, ETF SIPs offer a smart way to build wealth steadily over time.
How to Start SIP in ETF?
Here’s a simple step by step guide on how to start a SIP in ETFs:
- Step 1: Choose the Right ETF
Begin by selecting an ETF that aligns with your investment goals. You can choose from equity ETFs, gold ETFs, international ETFs and more. Evaluate factors like historical performance, underlying index, expense ratio and your risk appetite before finalizing.
- Step 2: Select a Reliable Brokerage Platform
Ensure the brokerage or investment platform you choose supports ETF SIPs. Many full service and discount brokers in India now offer SIPs in ETFs through exchanges like NSE or BSE.
- Step 3: Decide SIP Amount and Frequency
Set your investment amount and decide SIP frequency, monthly, quarterly, etc. Make sure the amount is affordable and fits into your overall financial plan. Regular investing is important, so choose an amount you can sustain.
- Step 4: Set Up Auto Debit Mandate
Most brokers provide an option to automate ETF SIPs through auto debit instructions. This ensures timely investments without manual intervention. Or you can opt for manual orders if preferred.
- Step 5: Monitor ETF Performance Periodically
Though ETFs are passive investments, reviewing performance at regular intervals is important. Keep an eye on market trends, tracking error and fund performance to ensure your SIP remains aligned with your financial goals.
You might ask Is It Good to do SIP in ETFs? And the answer is yes.
Investing in ETFs through SIPs is an effective and low cost way to build long term wealth. ETFs offer instant diversification by tracking a basket of securities, like stocks, bonds or indices, while SIPs bring in the discipline of regular investing.
This combination helps investors avoid timing the market. Through SIPs, you invest a fixed amount at regular intervals, which means you buy more ETF units when prices are low and fewer when prices are high. Over time, this strategy results in rupee cost averaging, reducing the impact of market volatility on your portfolio.
SIP in ETFs also allows you to start small without needing to invest a lump sum. It supports consistent wealth creation while keeping the expense ratio low, as ETFs are passively managed funds. Since ETFs are traded on stock exchange they offer real time liquidity you can buy or sell them during market hours just like stocks.
| Criteria | SIP in ETFs | SIP in Index Funds |
|---|---|---|
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Investment Type |
You invest in an ETF, holding a basket of securities replicating a specific index. |
You invest in a mutual fund scheme that mirrors a market index by holding its constituent securities. |
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Mode of Purchase
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ETF units are bought and sold on stock exchanges through a trading account, just like shares.
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Units are purchased directly from the fund house or through mutual fund platforms, no exchange involvement.
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How SIP Works
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Your broker executes ETF purchase order on your SIP date at market prices available at that time.
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AMC auto debits your SIP amount and allots units based on the closing NAV of the day.
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Pricing
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Price varies throughout the trading day based on market supply and demand.
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You get the day’s closing Net Asset Value (NAV), all investors transact at the same price.
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Account Requirements
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Requires both a demat account to hold ETF units and trading account for order execution.
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Only a bank account and mutual fund KYC are needed. Demat account is optional.
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Cost Structure
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Includes low ETF expense ratios, brokerage charges and possibly annual demat charges.
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Slightly higher expense ratios, no brokerage or demat costs if investing directly.
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Liquidity & Exit
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Can be sold anytime during market hours at real time prices.
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Redemption is processed by the AMC at closing NAV and credited to your bank in 1–3 working days.
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Minimum Investment
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Varies by ETF and broker, some allow low SIP amounts but you must buy whole units.
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Starts as low as ₹100–₹500 per instalment. Fractional units are allowed.
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Fractional Units
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Not allowed on Indian stock exchanges, you must buy whole units.
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Fractional units are allotted based on NAV and SIP amount.
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Final Words
We hope this guide has helped you clearly understand how to start a SIP in ETFs. Before initiating your ETF investment, take time to research and compare different Exchange Traded Funds to find one that matches your financial goals, risk appetite and investment horizon.
It’s important to select a trusted brokerage platform that allows SIP in ETFs, offers a seamless user experience and charges minimal transaction or brokerage fees. With consistent investing and careful planning, a Systematic Investment Plan in ETFs can be an effective strategy to grow your wealth over the long term.
Frequently Asked Questions
Is investing in ETFs through SIPs safe?
Yes, SIP in ETFs is safe when you choose well managed funds tracking reputed indices. However, returns may fluctuate with market movements, just like any equity investment.
How much should I invest in an ETF SIP?
You can start small ₹500 to ₹1,000 monthly but choose an amount that aligns with your financial goals and stay consistent for long term wealth creation.
Is SIP possible in ETFs in India?
Yes, many brokers in India now allow SIPs in ETFs through stock exchanges. You'll need a demat and trading account to start investing.
Is SIP in ETF better than SIP in mutual funds?
Both have benefits. ETFs offer real time pricing and lower costs, while mutual funds offer ease, auto-debit and fractional units ideal for beginners.
Do ETFs give dividends in SIP mode?
Yes, some ETFs offer dividends. You can choose between dividend paying or growth options based on your need for regular income or longterm capital growth.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
