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Investing in Exchange Traded Funds (ETFs) with a Demat Account

Ardent financial market investors are always looking out for interesting financial instruments to grow their money. Stocks, equities, derivatives, mutual funds, bonds, debentures, commodities - the list goes on. Mutual Funds are usually popular among investors because it lets you invest across asset classes. One such resourceful and emerging mutual fund category that is enjoying the focus of investors is Exchange-Traded Funds.

What are Exchange-Traded Funds?

Exchange-Traded Funds (ETFs) are mutual funds that are listed and can be traded, like shares on a stock exchange. An ETF is a financial instrument where funds gathered by a large group of investors are invested in a set of assets like shares, debt securities such as bonds and derivatives. A change in the price of one or more assets in the underlying portfolio leads to a proportional change in the ETF.

You can opt for an actively- or passively-managed ETF depending on the investment style you wish to pursue.

  • In an actively-managed fund, fund managers take calculated risks and invest in companies with high growth potential with the objective to outpace the markets or a benchmark index.
  • In a passively-managed fund, ETFs replicate the portfolio of a benchmark index and generate returns in line with it by investing in companies listed on the growth charts. Passively-managed ETFs are a more popular choice among investors as compared to actively-managed ETFs. Click here to understand it in further detail.

Categorization of Exchange-Traded Funds

ETF is a great investment option even if you are not very well-versed with financial markets as it offers a broad and diverse portfolio within itself. That gives you great exposure and hedges your associated risks. ETFs are dynamic instruments provided in an array of different categories to appeal to everyone. The popular types of Exchange-Traded Funds are:

  • Index ETFs: These represent Equity indices like Nifty or Sensex.
  • Gold ETFs: These represent commodities like physical gold.
  • Sectoral ETFs: These represent portfolios of equity sectors like pharma, banking, etc.
  • International ETFs: These represent assets in the international financial markets.

Step-By-Step Guide to Investing in ETFs

Your investment journey in ETFs can start after completing these two prerequisites:

  • Open a Demat Account with a registered broker or brokerage firm. This account will hold all the ETFs you buy.
  • Open a Trading Account with a registered broker or brokerage firm and link it to your Demat Account. This account will enable you to buy/sell ETFs on stock exchanges.
  • Once you have a Demat and Trading Account, you can choose an ETF of your choice and begin investing.

Understanding Demat Account and Trading Account

In the current times, you buy/sell shares and securities online and even store them online. The account which holds all of your claims and securities in an electronic mode is a Demat Account. On the other hand, a Trading Account is an account that facilitates trading in stocks and securities. Each Demat Account is allotted a unique ID that helps companies identify them correctly. It enables a valid credit/debit of shares and securities like ETFs to/from your account.

Additional Read: What is Demat Account, its Meaning, Type, and Process

You can easily open a Trading and Demat Account online or offline. You only need to keep the following documents:

  • A valid PAN card
  • KYC Norms like Address Proof (Passport, Aadhar Card, etc.), Income Proof (ITR Statement, 3-month salary slip, etc.), Bank Account Proof (Cancelled Cheque, Bank Passbook, etc.)
  • Miscellaneous documents like a passport photo, PAN card-matching signature on white paper

Additional Read: Opening a Demat Account to Invest in Mutual Funds

Just like Mutual Funds, ETFs are also managed by fund managers who work to grow your money. You would ideally want your funds to be handled by proficient and skilled fund managers who effectively increase your profits and hedge risks. So do your research before picking a broker to open your Trading and Demat Accounts.

Additional Read: Which Demat Account is best

ICICI Direct is a trusted broker with excellent service quality offerings. We can help you open both these accounts conveniently and quickly. ICICI Direct also has a thorough research arm that keeps a close track of the markets, intending to build profitable portfolio for its customers.


ETFs come with inherent benefits of Portfolio Diversification, Low Transaction Costs, Transparency, and Convenience. All of this makes Exchange-Traded Funds an excellent investment choice. So, start your ETF investment journey soon and give your money more time to grow, compound, and become a large corpus.


      1.  How can I invest in ETFs through a Demat Account?

Investing in ETFs through a Demat Account is just like investing in shares. You can go to your Trading Account, choose the ETF you want to invest in and once you have bought units, it will reflect in your Demat Account.

     2.  Does ETF need a Demat Account?

Yes, it is compulsory to hold Demat and Trading Accounts to trade in ETFs.

     3.  Can I just invest in ETFs?

With a Trading and Demat account, you can invest in ETFs easily without any hassle.

    4.  Can ETF be bought without Demat Account?

No, you cannot buy ETFs without a Demat Account. This is because ETFs are like shares that are traded on a stock exchange. To be able to trade in ETF units, you need to be able to store them electronically, which is done in a Demat Account.


ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein mentioned are solely for informational and educational purpose.

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