- Indian investors can choose from several Exchange Traded Fund (ETF) options.
- Gold ETFs offer an easy way to invest in precious metals.
- Index ETFs let investors track the Nasdaq and other major markets.
- ETFs make a good addition to a diverse portfolio.
Exchange Traded Funds (ETFs) can be a useful tool for investors who do not have the time, interest or knowledge to track the markets themselves. These funds track the broader markets, so they remove the risk associated with trying to pick shares. You don’t have to worry about performing due diligence on individual companies and can benefit from broader, managed exposure to specific sectors, countries, or asset classes.
What Is an ETF?
An ETF is a pooled investment security that works similarly to a mutual fund. There are ETFs structured around individual commodities, companies in specific sectors, or other collections of securities. Investors can buy and sell ETFs in the same way they’d trade regular stocks. One key difference between ETFs and mutual funds is that the price of ETFs changes throughout the day as people buy and sell them. However, mutual funds change prices only once per day when the markets close.
What To Look for in an ETF
There are several factors an investor should consider when choosing an ETF, including:
- The level of assets held
- Trading volumes
- The underlying assets
- How many other ETFs cover the same market
- How accurately the fund tracks the underlying assets
In general, the first ETF to focus on a specific market or asset class is likely to attract the most interest, thereby having the greatest trading volume. The best ETFs track the value of their underlying assets quite closely, and hold a substantial amount of the assets in question. Established ETFs are less risky, and less likely to be unexpectedly liquidated.
The Best ETFs for Indian Investors
Indian investors can choose from a variety of ETFs, covering several categories. Broadly, those categories are:
- Index ETFs
- Gold ETFs
- Sector ETFs
- Bond ETFs
- Global ETFs
- Currency ETFs
- Sustainable ETFs (United States)
- Fixed-Income ETFs (Canada)
- Property ETFs (Australia)
Each of these funds gives investors exposure to a given asset class/sector without the investor worrying about the risks or practical challenges associated with researching companies or holding a physical commodity. Indians looking to invest have the choice of many different funds covering each of these categories.
Investors should also consider looking into ETFs abroad. Canada, Australia and the United States all have ETFs that could help diversify your portfolio. For example, Australia offers both physically-backed and synthetic ETFs to invest in. Investing in an ETF can help you access more Australian shares at once rather than having to choose individual shares separately.1
1. Motilal Oswal Nasdaq-100 ETF
The Motilal Oswal Nasdaq-100 ETF2 is a long-running ETF that gives Indian investors exposure to the U.S. stock markets. It has a minimum investment requirement of 10,000 Rs. This ETF markets itself as a growth fund, and there is no minimum lock-up period. It tracks the Nasdaq quite accurately, so it has historically had strong returns over the long term. If you are interested in investing in this fund, you can inquire online or call an advisor to join the fund.
2. Vanguard Australian Shares Index ETF (VAS)
The Vanguard Australian Shares Index ETF is a low-cost investment that provides exposure to Australian companies and property trusts. It tracks the return of the S&P/ASX 300 Index before taking into account fees, expenses and tax. This is a good option for investors looking to potentially gain long-term capital growth. And since it invests in a diversified portfolio of securities, this ETF is less exposed to performance fluctuations that individual securities can endure.³
3. Birla Sun Life Gold ETF
The Birla Sun Life Gold ETF4 invests in gold of 99.5% purity. This fund is a good option for investors who are interested in having some precious metals in their portfolio but do not want to worry about nominating a depository or paying storage fees. Gold typically serves as a hedge against inflation but is a nonproductive asset, so it may produce poorer returns than equities during times when the markets are performing well. However, it can still have a strong place in a diverse portfolio.
4. Nippon ETF Infra BeES
The Nippon India ETF Infra BeES5 tracks the Nifty Infrastructure Index. This ETF was launched in 2010 and has seen a CAGR of 22.34% over the last year, although returns have been much more modest since its inception. Investors looking to put money into relatively reliable domestic companies may find this ETF an appealing option. It tracks the underlying index quite well because the fund tries to hold securities from the index with a similar weight to how they appear in the index itself.
5. Nippon ETF Long-term Gilt
The Nippon ETF Long-term Gilt6 is a fund aiming to track the NIFTY 8-13 yr G-Sec Index’s performance. Like the Infra BeES, it does this by holding assets with a similar weighting to the index. This factor means its tracking errors are minimal. Investors do pay a fee for the ETF, but many feel this is worthwhile for the reliability and ease of investing in the ETF. Since its inception, it’s offered returns of 6.86%, compared to 7.06 for the underlying index.
6. Market Vectors Indian Rupee/USD ETN
This Exchange-traded Note may be an attractive option for those looking to invest in currencies rather than stocks and shares. The Market Vectors Rupee/USD ETN7 is a relatively convenient, low-fee way of getting into the currency markets. It’s important to be aware of the relatively volatile nature of foreign currency markets compared to the top flight indexes and even safe-haven commodities. However, Indians who are looking to diversify their portfolios might find value in ETNs.
7. UTI Sensex ETF
The UTI Sensex ETF8 is a passively managed fund that invests in the top 30 companies by capitalization from the S&P BSE Sensex Index. This fund tracks the Sensex with minimal tracking errors and has historically offered good returns. As of March 2022, it provided five-year returns of 15.86%, and returns for the year before were even higher than this. This fund is a good option if you’re looking for long-term returns, and it’s easy to get started investing online.
8. Axis Gold ETF
The Axis Gold ETF is another precious metals ETF. It is a good option if you’re looking for a low-risk way to generate some steady returns. Since the fund’s inception, it has offered returns of 7.23%. These are quite favorable returns for a fund focused on gold. Equities may offer better rates during economic booms; however, the Axis Gold ETF’s low fees and stable nature make it a good addition to the portfolio of any Indian looking for a long-term “stable” investment option.
9. LIC G-Sec LTE Fund
This LTE fund is ideal for those looking for long-term income. It aims to provide comparable returns to the NIFTY 8-13 year G-Sec Index. The LIC G-Sec LTE Fund9 markets itself as a moderate risk fund, and it tracks the underlying index quite accurately. LIC Mutual is a trusted investment company, so the fund should be easy for investors to liquidate if required. It’s also easy to start investing, and you can trade short-to-medium term if you desire.
10. LIC MF Flexi-Cap Fund
LIC Mutual also manages the LIC MF Flexi-Cap Fund. This fund is a very high-risk fund, so it’s not something investors would want to put a significant portion of their holdings in. However, it has the potential to offer high returns. This fund invests in a mixture of small, mid and large cap stocks. It intends to provide long-term capital appreciation, which gives investors the chance to see returns and ride out any short-term volatility.
11. Kotak NV 20 ETF
Kotak Mahindra Mutual Fund manages the Kotak NV 20 ETF.10 It’s a lower-risk fund that focuses on building long-term value. This feature makes it a popular choice for risk-averse investors. It tracks the NIFTY 50 Value 20 Index, which is a relatively stable index of domestic companies for Indian investors. Would-be investors can contact an advisor via the Kotak website or get started online.
How To Choose an ETF
Choosing an ETF requires an investor to consider many factors. Two important things to think about are the type of asset and the investor’s level of risk aversion. For example, a gold ETF or highly-rated bonds would be low risk but offer lower potential returns than investments in an emerging market or a more volatile sector. Another important consideration is the investment requirements. Some ETFs are open to all and require minimal capital. Others have much higher minimum investment requirements.
Diversify Your Portfolio for the Future
Indians planning for their retirement should aim to have a relatively diverse portfolio. Experts are divided on retirement planning recommendations, and some recommend rebalancing the portfolio as retirement approaches. A mixture of equities, bonds and commodities can help to reduce the risks associated with market volatilities. Having some funds invested in foreign markets can also be helpful, as it buffers the investor against any local recessions or economic downturns.