Best ETFs to Invest in India
Investing in Exchange Traded Funds has become increasingly popular recently as it is an excellent way to diversify an investor’s portfolio of stock or bonds at a low cost. In India, there is a surge in the number of ETF options available for investors. However, with so many options, finding out which is the best for your investment goals and risk tolerance can be challenging. Therefore, this blog will explore some of the best ETFs to invest in India.
What is an ETF?
An ETF or Exchange Traded Fund is a fund that invests your money into different financial assets such as stocks, bonds, currencies, or commodities traded on a stock exchange similar to a stock. There are various categories of ETFs like Index, Equity, Gold, Debt, and International ETFs. The Net Asset Value (NAV) of an ETF changes with the movements in the stock market. The main feature of an ETF is that it allows you to trade for the short term or hold for the long run, and you can buy the number of units you wish to buy during market hours.
The cost of the underlying assets determines the share price of an ETF. The share price of an ETF increases if the price of one or more assets surges and decreases if the price of the underlying asset falls.
Things to be considered while buying ETFs in India
- Investment Objective: Before investing in an ETF in India, it is essential to consider your investment objectives, such as your risk tolerance, investment time horizon, and financial goals.
- Liquidity: ETFs are traded on the stock market, which means that they fluctuate with the market’s demand and supply. It is imperative to check the liquidity, as low liquidity can result in higher trading costs because it makes it difficult to sell your investments.
- Underlying Assets: ETFs track a specific index, sector, or asset class. Hence it is essential to understand the underlying assets of the ETF you are planning to invest in. In addition, you should know about asset allocation, diversification, and exposure to a specific sector or industry.
- Tracking Error: Tracking errors can occur because of many factors, such as transaction costs, management fees, and index methodology. Therefore, it is essential to check the historical tracking error of an ETF to make sure it has a good track record of accurately tracking its underlying index.
- Expense ratio: The annual fee ETF providers charge to manage the fund. It is essential to compare the expense ratio of different ETFs as a higher expense ratio means it is more expensive, which can significantly impact your returns over time.
Mutual Funds vs ETF
One of the biggest problems with most mutual funds is that the expense ratio is too high while the returns are at par or below the benchmark. The average Total Expense Ratio for Large and Midcap funds is 0.9% while the maximum TER is 1.8%. Compared to these, ETFs provide better performance with an expense ratio as low as 0.05%!
There are certain categories like Small cap where there might not be suitable ETF available and people can opt for mutual funds in such cases.
Top Index ETFs in India 2023
| Fund Name | 1 Year (% p.a.) | 3 Year (% p.a.) | 5 Year (% p.a.) | Expense Ratio (%) | AUM (CR) |
| Nifty 50 Bees | 9.60 | 15.40 | 13.6 | 0.05 | 11,551 |
| HDFC S&P BSE Sensex ETF | 9.50 | 15.18 | 13.54 | 0.05 | 306 |
| SBI S&P BSE Sensex ETF | 9.48 | 15.19 | 13.54 | 0.07 | 84,390 |
| Edelweiss Nifty 100 Quality 30 Index Fund | 4.71 | – | – | 0.90 | 12 |
| UTI S&P BSE Sensex ETF | 9.48 | 14.67 | 13.24 | – | 26,713 |
Top Gold ETFs in India 2023
| Fund Name | 1-Year Return (% p.a.) | 3-Year Return (% p.a.) | 5-Year Return (% p.a.) | Expense Ratio (%) | AUM (CR) |
| Aditya Birla Sun Life Gold ETF | 13.76 | 11.05 | 12.67 | 0.54 | 355.56 |
| Invesco India Gold ETF | 13.92 | 11.09 | 12.74 | 0.55 | 92 |
| SBI Gold ETF | 13.78 | 0.00 | 12.61 | 0.64 | 2,919 |
| Kotak Gold ETF | 13.82 | 10.98 | 12.63 | 0.55 | 2,557 |
| Axis Gold ETF | 13.47 | 10.81 | 12.63 | 0.53 | 788 |
| UTI Gold ETF | 13.62 | 10.56 | 12.37 | 1.13 | 616.50 |
| HDFC Gold ETF | 12.96 | 10.70 | 12.28 | 0.59 | 3,468 |
Top Sector ETFs in India 2023
| Fund Name | 1-Year Returns (% p.a.) | 3-Year Returns (% p.a.) | 5-Year Returns (% p.a.) | Expense Ratio (%) | AUM (CR) |
| Nippon ETF Consumption | 10 | 13.44 | 9.57 | 0.29 | 41.18 |
| Nippon India ETF Nifty Infrastructure BeES | 4.99 | 16.03 | 8.10 | 1.03 | 33.67 |
| Nippon India Nifty Auto ETF | 16.67 | – | – | 0.22 | 49.23 |
| Nippon India IT ETF | -10.7 | – | – | 0.21 | 1,007 |
| Nippon India Pharma ETF | -8.06 | 198 |
Top Bond ETFs in India 2023
| Fund Name | 1-Year Returns (% p.a.) | 3-Year Returns (% p.a.) | 5-Year Returns (% p.a.) | Expense Ratio (%) | AUM (CR) |
| Nippon India ETF Nifty 8-13 yr G- Sec Long Term Gilt | 2.43 | 3.79 | 6.67 | 0.09 | 1224.1 |
| SBI- ETF 10Y Gilt | 1.77 | 2.79 | 5.52 | 0.14 | 2497.25 |
| LIC MF Government Securities Fund | 1.87 | 4.05 | 6.76 | 1.48 | 46.8 |
| Nippon India ETF 1D Rate Liquid BeES | 3.79 | 2.67 | 1.75 | 0.69 | 6955.98 |
Top Global Index ETFs in India 2023
| Fund Name | 1-Year Returns (% p.a.) | 3-Year Returns (% p.a.) | 5-Year Returns (% p.a.) | Expense Ratio (%) | AUM (CR) |
| Nippon Hang Seng BeEs | -4.08 | -2.39 | -0.11 | 0.93 | 162.73 |
| Motilal Oswal Nasdaq 100 (MOST Shares NASDAQ 100) | -3.71 | 14.71 | 19.52 | 0.58 | 5224.68 |
Top Currency ETFs in India 2023
| Fund Name | 1-Year Returns (% p.a.) | 3-Year Returns (% p.a.) | 5-Year Returns (% p.a.) | Expense Ratio (%) | AUM (CR) |
| WisdomTree Indian Earnings Fund (EPI) | 41.35 | 16.86 | 14.98 | 0.84 | $ 10,01,532.23 |
| Market Vectors Indian Rupee/ USD ETN | – | – | – | 0.55 | 1.178 |
Conclusion
Exchange Traded Funds (ETFs) have emerged as a popular investment option as they offer diversification, transparency, and liquidity, making them an attractive alternative to mutual funds. People can check their portfolios and evaluate if mutual funds are adding any value or they can replace them with low-cost ETFs and enhance their portfolio returns. However, you must conduct your due diligence before investing in ETFs in India.
If you are looking beyond stocks to diversify your portfolio to get 10-15% returns, check out Alternative Investments below
Frequently Asked Questions (FAQs)
- How to choose the best ETFs in India?
It would help if you considered factors such as determining your investment objectives, evaluating the underlying assets, comparing the expense ratios, checking the liquidity, and considering the historical performance to choose the best ETFs in India.
- What is the difference between ETFs and Mutual Funds?
ETFs and mutual funds are both investment vehicles that pool money from investors to purchase a diversified portfolio of assets. The significant difference is that an ETF is traded on the stock exchange while a mutual fund is not, as it is bought and sold at NAV price.
- Are ETFs tax efficient?
ETFs are tax efficient because they are treated like Equity investments with dividend reinvestment. ETFs are traded on the stock market and behave like a stock as it is sold from one investor to another without any capital gains.
- Why should I invest in ETF?
An ETF allows you to diversify your portfolio, and they are known to provide decent returns in the long run as they have a lower expense ratio because they are passively managed.
