General information only. Not investment, tax or legal advice. Naming a fund category is not a recommendation to buy, hold or sell anything. Prem Tax and Accounting Corp is a CPA firm, not a law firm. Rules differ by country and change often: confirm with the official source or a qualified adviser before you act. Read the full notice. Book a 10-minute call.

Mutual Funds in India

Index funds, ETFs and funds of funds: what sits inside, and how each is taxed

Index funds and ETFs copy an index; a fund of funds holds other funds. Here are SEBI's rules, the overseas limits, the India tax class by type for FY 2026-27 and what holders abroad should know.

Prepared by Prem Tax and Accounting Corp. Last checked against official sources on November 5, 2026.

An index fund or ETF copies an index, and a fund of funds (FoF) holds other funds instead of shares. Both sit in SEBI's "other schemes" group. The Index-Layer Peel Sheet below shows what lies inside each layer. It recommends nothing.

At a glance

Index funds and ETFs keep 95% in the index's securities; an FoF keeps 95% in its underlying funds.
India, FY 2026-27: three tax classes, set by what the fund holds, not by its wrapper.
Overseas funds are capped by SEBI, and the open or closed status is the fund house's notice, not SEBI's.
U.S.: usually a PFIC, the practitioner view.

Slide show: Passive funds in four slides

Index fund
Bought from the fund house at NAV and tracks an index.
ETF
Tracks an index but trades on an exchange through a demat account.
Fund of funds
Holds units of other funds, Indian or overseas, active or passive.
Gold and silver
Gold and silver ETFs keep at least 95% of assets in the metal and related instruments.

Assets by group on 30 September 2026 Rs lakh crore

Exchange traded funds11.50

Index funds3.20

Overseas funds of funds0.49

Source: AMFI monthly report

What SEBI requires

Product	Rule
Index fund or ETF	95% in index securities; tracking error at most 2% for equity, tracking difference 1.25% for debt; equity ones rebalance within 7 days of an index change
Fund of funds	95% in underlying funds; expense cap 0.90% if it holds index funds, ETFs or liquid funds
Overseas investing	USD 1 billion per fund house within a USD 7 billion industry cap; overseas ETFs USD 300 million within USD 1 billion (as of 20 March 2026)

How India taxes it (FY 2026-27)

Type	Class	Long term after
Indian equity index fund or ETF	Equity-oriented	12 months
Debt index fund or ETF	Specified	Never, for units bought from 1 April 2023
Gold, silver or overseas, listed	Other	12 months, 12.5%
Gold, silver or overseas, unlisted	Other	24 months, 12.5%

A domestic FoF is equity-oriented only if 90% sits in one listed fund that itself holds 90% listed Indian shares. Gold ETFs are no longer slab-only: the 2023 to 2025 rule ended for transfers from FY 2025-26. STT of 0.001% applies to a delivery sale of equity ETF units, and none to buying.

Abroad in short

USA: mark-to-market for ETFs depends on whether NSE and BSE are qualified exchanges, which is not settled. An overseas FoF's inner funds may add indirect PFIC filings, with a USD 5,000 exception in some cases.
Canada: the T1135 category for ETF units held in an Indian demat account is not settled.
UK and Germany: no Indian ETF is on HMRC's list of 2 November 2026. Germany counts equity-fund units held by a fund as 51% equity; whether that reaches Indian FoFs is not settled.

Our checklist

The Index-Layer Peel Sheet, per holding:

Wrapper: index fund, ETF or FoF, and what it tracks or holds.
Where units sit: folio or demat account, and the exchange if listed.
The fund house's latest notice on overseas room.

Mistakes people make

Calling every international fund an equity fund for tax. Only Indian listed shares count.
Using 24 months for a listed gold ETF.

Re-check the caps and rates each April.

Common questions

Are gold ETFs taxed like debt funds?

No. From FY 2025-26 transfers they follow the normal holding periods, with 12.5% long-term gains.

Is an international fund open to new money?

SEBI does not publish that. Each fund house's notice decides.

Do overseas holdings raise the risk label?

They tend to. SEBI's method scores foreign holdings at 7, so funds with large overseas holdings tend to show high levels.

Official sources

Keep reading

Please read: general information only

This page gives general information and education about Indian mutual funds and about the tax and reporting rules that may apply to people who hold them. It is not investment, legal, tax, accounting or other professional advice, and it is not a substitute for advice from a qualified adviser, attorney or CPA who knows your facts. Reading it does not create a CPA-client or any other professional relationship with Prem Tax and Accounting Corp. Prem Tax and Accounting Corp is a CPA firm, not a law firm. It does not recommend, rate, sell or manage any mutual fund or other investment, and naming a fund category or product here is not a recommendation to buy, hold or sell it.

Tax and reporting rules differ by country and by person, and they change often: thresholds, rates, forms and deadlines are revised, and agencies, courts and fund companies change how they apply them. We checked the figures against the official sources named on the page on the date shown (last reviewed November 5, 2026), but we do not promise that this page is complete, current or free of errors, and we do not update it the moment a rule changes. Where the rules are unsettled we say so. Fund companies set their own policies on who may invest, and those can change without notice. Past performance does not predict future results, and investments can lose value. Examples are invented and for illustration only.

To the fullest extent the law allows, Prem Tax and Accounting Corp and its owners and staff are not responsible for any loss or decision that results from using this page. Links to government and other websites are for convenience and we do not control them.

This content is copyrighted by Prem Tax and Accounting Corp. Copying it in bulk, scraping it, or using it to train artificial intelligence systems requires our written permission.

Questions about how your Indian funds are reported on a U.S. return? Keshav Agrawal is a U.S. CPA and a Chartered Accountant (CA) from India. We prepare the U.S. side (for example Form 8621, FBAR and Form 8938) and can work alongside your adviser in India, Canada or Europe. We do not sell, rate or recommend any investment. Book a 10-minute call or send us a message.

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Index funds, ETFs and funds of funds: what sits inside, and how each is taxed

Index fund

ETF

Fund of funds

Gold and silver

What SEBI requires

How India taxes it (FY 2026-27)

Abroad in short

Our checklist

Mistakes people make

Common questions

Official sources

Keep reading

Let's talk about your taxes, your business, your plans.