SEBI's ETF Overhaul: Will Your Fund Track Better?

SEBI has overhauled how ETFs work in India — fixing poor liquidity, big price gaps, and tracking errors that quietly cost regular investors money every single day.

Here's what happened: SEBI introduced a new ETF framework requiring more market makers to ensure ETFs trade closer to their actual underlying value at all times.. Previously, many Indian ETFs suffered from low trading volumes and wide bid-ask spreads, meaning retail buyers often overpaid or undersold their units.. The new rules push AMCs to appoint dedicated liquidity providers and set stricter limits on how far ETF prices can deviate from their real NAV..

What you should do: Check the tracking error of any ETF you currently hold — look for funds where 1-year tracking error stays below 0.5% on your AMC's factsheet.. Compare ETF liquidity before buying: choose ETFs with average daily traded volume above ₹5 crore to avoid getting stuck at bad prices.. If you invest via SIP in index mutual funds only because ETFs felt risky or illiquid, revisit ETF options now — costs may be meaningfully lower..

ETFs with the same underlying index can have very different tracking errors — Nifty 50 ETFs from two different AMCs sometimes differ by 0.3-0.8% annually, which compounds into thousands over a decade.