The interest in Indian equity Exchange-Traded Funds (ETFs) is growing among Non-Resident Indians (NRIs) living in the US, UK, and the UAE. The equity markets provide long-term growth, and the ETF inflows are still increasing, making this asset class very appealing to the NRI who wants a diversified exposure. This guide explains Indian ETF for NRI, the regulations and tax implications, and popular ETFs.

What is an Indian ETF for NRI?

An ETF (Exchange-Traded Fund) is an index fund that follows a set index or a set of assets and is traded in a stock exchange, much like a share. It enables the investor to get exposure to the underlying index and have the benefits of intraday trading.

In India, ETFs are mutual fund schemes that are listed on stock exchanges. They are regulated by the Securities and Exchange Board of India (SEBI) under Mutual Fund Regulations. Unlike regular mutual funds, Indian ETFs are passively managed. They track an index, instead of actively picking stocks. ETFs are held in Demat mode and traded on exchanges. NRIs can invest in them. 

How to Access Indian ETF for NRI

Indian ETF investment for NRI is possible through three main ways: 

1. Direct route with Indian brokers (PIS or non-PIS): Here, NRIs open an NRE/NRO bank account, a Demat account, and a trading account as per the Portfolio Investment Scheme (PIS) of the RBI. This allows them to purchase ETFs listed on Indian exchanges.

2. ETFs with Indian orientation in overseas markets: There are some ETFs of Indian indexes available in overseas markets (US, UK, and so on), and this might be easier to access when the NRIs are abroad.

3. Local access via UAE-based distributors or brokers - There are asset management companies popular in the Gulf region that provide ETF access for NRIs. 

Checklist Regulatory & Compliance

The regulatory and compliance checklist that should be adhered to when NRIs are planning to invest in Indian ETF for NRI:

• Open an NRE/NRO bank account and link a Demat/ trading account for Indian investments.

• Adhere to the Foreign Exchange Management Act (FEMA) for investing and repatriating overseas.

• Fill FATCA/CRS self-certification of taxation disclosure on the country of residence.

• Check that the KYC (Know Your Customer) requirements are met according to the SEBI requirements.

Taxation for NRIs on Indian ETF for NRI

Here’s how NRIs are taxed for gains from ETF investments:

• Capital gains on ETFs in India are determined based on whether the ETF is equity-based and the holding period. capital‐gain tax rates on equity ETFs (since 2025) are taxed as-  STCG at 20%; LTCG at 12.5%

• Dividends are taxed

• The NRIs may be subsequently taxed in their countries of residence (US, UK, UAE). If the residing country has a DTAA with India, double tax can be avoided. 

• Foreign investment in the US can result in the PFIC regulations and US taxation on international earnings. Read our blog on PFIC here- (link) 

• Foreign dividends/gains are to be reported in the UK; tax treaties can be used to eliminate taxation.

• UAE residents generally do not pay income tax in the UAE, but their gains in India may be taxed. 

Choosing the Right Indian ETF for NRI

The four fundamental criteria that NRIs should consider when evaluating Indian ETFs include:

1. Tracked index: Is the ETF tracking a broad index (e.g. Nifty 50, Sensex) or a narrow sector/small-cap index?

2. Expense ratio (TER): The lower the costs it has, the better in net returns over time.

3. Liquidity and AUM (Assets under Management): Larger AUM and volume of trade guarantee narrower spreads and easy trading.

4. Domicile/tax efficiency: The domicile of an ETF (India vs overseas listing) has a bearing on tax/ reporting and access to investors.

Best ETF Options for NRIs

Here is a comparison of some prominent ETFs (for illustrative purposes only; not a recommendation):

US, UK, UAE Country-Specific Requirements

Check out the country-specific needs below for NRIs

1. Indian ETF for NRI in US: FATCA is obligatory, there is a risk of the PFIC tax treatment on the foreign-domiciled funds, and it is usually easier to use US-listed ETFs.

2. Indian ETF for NRI in UK: India-based ETFs on the London Stock Exchange can be provided by UK brokers. The treatment of tax is subject to the UK foreign income treatment and the UK treaty with India.

3. Indian ETF for NRI UAE: There is no or minimal personal income tax in most instances, and the Indian tax and repatriation provisions become the major point of focus. Access to direct distributors in the UAE is being put in place by some Indian fund houses.

Common Pitfalls NRIs Should Watch For

The major errors that NRIs commit when investing in Indian ETFs are:

• Currency fluctuations in the form of INR relative to USD/GBP/AED may reduce the returns.

• Investing through an Indian or foreign-listed fund could alter tax load.

• Not knowing whether there is a need for the PIS route.

• US tax rules (e.g., PFIC) can also apply to Indian-market ETFs.

Conclusion

Indian equity ETFs offer an attractive opportunity to NRIs living in the US, UK, or the UAE to take part in the India growth story. Knowing the functioning of every route, adhering to regulations, paying attention to tax and currency effects, and choosing the choice of ETF, you will be able to make the correct decision in your global portfolio.

Frequently Asked Questions

1. Can I invest in an Indian ETF from my UK brokerage account?

Yes, if the ETF is listed on a UK exchange or your broker provides access to Indian markets. However, you need to check the eligibility, tax, and repatriation rules.

2. Does currency fluctuation affect my return when I invest in an Indian ETF?

Yes, if the Indian equities that form the basis of your ETF do well, but the INR exchange rate against your home currency (USD/GBP/AED) moves unfavorably, then your net returns will be lower.

3. Do I need a PIS account to invest in Indian‐listed ETFs?

If you are a non-resident Indian and you invest directly through an Indian broker/trading account, then typically the PIS route is required for portfolio investments.

4. Are dividends from Indian ETFs taxed in India and my country of residence?

Yes, India will impose withholding tax on dividends. Your resident country may also tax those dividends or capital gains, subject to treaty  ​‍​‌‍​‍‌​‍​‌‍relief.