In this article we will list down few best ETF to invest in 2018 in India.
But before that, lets know some basics of of ETF’s.
Exchange Traded Funds (ETFs) has been accepted well by Indian investors. ETF investing is like stock investing, but with a very interesting difference.
In stock investing, analysis of stock is a must before one buys it. But while investing in ETF, analysis is not as necessary. Why?
They are inherently very diversified as they mimic or follow an index.
How to buy an ETF in India?
Though ETFs can be bought just like stocks, but I prefer to buy ETF’s systematically like Mutual Fund SIP.
These days almost all mutual fund companies offer ETF’s.
People can decide whether they want to buy traditional mutual fund units or share of ETF.
These days, experts advice people to also include ETF in ones investment portfolio
#1. Types of ETF’s in India
Following are the three type of ETFs that are currently in operation in India:
- EQUITY ETF
- Index tracking ETF
- Sector (like Bank) tracking ETF
- DEBT ETF
- GOLD ETF
- INTERNATIONAL ETF
- International index tracking ETF (like Hansen).
#2. Why I like ETF as an investment option..
Exchange Traded Funds (ETFs) automatically became my favourite investment option.
May be unknowingly, but the investor inside me always wanted to have an investment option like ETFs.
There was no surprise why, when ETF was introduced in India in 2001, it became instant hit.
I always wanted to have a financial product that has a combined advantage of stocks and mutual funds.
- Stocks are much easier to trade.
- Mutual funds provide better risk management.
- ETFs has a combined advantages of both stocks and mutual funds.
When the ETF was launched in 2001, huge success was expected.
But what happened after that was only a modest success.
In America, ETF was first launched way back in 1993 for institutional investors. But today ETF is worth more than $2.1T in asset.
Even in Europe, ETF is one of the most liked investment alternatives for common man.
It is worth mentioning that a part of success of ETF, as investment product, goes to John Bogle.
He is the founder and CEO of The Vanguard Group. He is one of those pioneers who were against of active investing.
John C Bogle promoted ETF as the best financial product for common men.
#3. ETFs is a successful investment vehicle.
ETF is nearly two decade old investment option.
This long running time-span speaks loads of its inherent advantages.
If there is one win-win option for both providers and investors, it is ETF.
Experts suggest ETF’s for common man because of its low cost.
The cost of managing an ETF is bare minimum. When cost is low for a fund, the chances to make higher returns are also enhanced.
In India, there are not many varieties of ETF.
If we can get more variety of ETF’s, probably we must buy shares only indirectly through ETF’s and mutual funds.
For the moment, India has ETF for only the following:
- Banking Stocks,
- Index Tracking and,
- Gold price tracking.
It is surprising why ETF’s is not seen as huge a success in India as they saw in America and Europe.
But ETF being the kind of product it is, its success in India is also not too far.
Now majority of ETF’s are focusing on gold and index. Soon we may have more sector focused ETF’s.
Nevertheless, index tracking ETF’s are world’s favourite and the same is available in India.
Dominance of gold is clearly seen in ETF’s.
With increased awareness about the advantages of ETF, there is no doubt that ETF’s will dominate the investment market in future.
#4. Advantages of ETF that makes it best…
I am personally a passive investor.
I know there are investors who think that involved investing is best when it comes to equity.
But I find my own comfort in passive investing. The theory of ETF matches with the concept of passive investing.
#4.1 ETF has low cost
ETF’s main advantage is its low cost. But why ETF’s are cheaper compared to other mutual fund family?
This is because the way ETF portfolio is managed, in a passive way!
ETF portfolio is not managed in the same way as other equity based mutual funds. Neither there is dedicated, highly paid, fund managers required to manage ETF portfolio.
Instead, the portfolio composition has a direct resemblance to the market index or gold prices etc.
#4.2 ETF is an updated version of Index funds?
What we are talking about ETFs here looks like it resembles index funds, right?
But ETF and Index funds are similar but not identical.
What is the difference between an index fund and an ETF (which is index linked)?
Lets see what makes ETF even more unique than index funds.
ETF (Nifty) and Index Fund (Nifty) are almost identical products. But difference lies in the way one can buy and sell them.
This is where ETF takes big leap over index funds.
- ETF’s can be bought online, Index Funds can also be bought online.
- But the difference lies in the price movement. ETF price varies like stocks. Very volatile. Hence there are chances to pick an ETF at undervalued price levels.
- On the other and, price of index funds change only once in a day.
To buy ETF units one need not face all this formalities. Open an online trading account and buy/sell ETF units just like stocks.
But stocks are risky, ETF are equally risky? ETF are like stocks?
ETF’s are like stocks but with a more refined risk profile.
ETF is a hybrid of stocks and mutual funds.
#5. Types of ETFs available in India in 2018
#5.1 Equity ETFs
Equity ETF are the most popular form of ETF that is currently being traded in Indian stock market.
Investors like me love equity ETF as they provide us passive investing opportunity.
Equity ETF generally follow an index.
ETF maintains the same proportion of stocks as they are weighted in the underlying index.
Some common underlying index that ETF’s follow are as follows:
- Nifty 50 Index
- Nifty 100
- Nifty Bank
- Nifty CPSE (Central Public Sector Enterprises like ONGC, Coal India, GAIL etc).
- Nifty Infrastructure
- Nifty Mid Cap 100
- Nifty Next 50
- S&P BSE Sensex
- Nifty50 Value 20 Index
- Nifty50 Shariah Index
As equity ETF duplicates the underlying index’s performance, hence equity ETF is considered most transparent.
This also result in very low expense ratio of equity ETF’s compared to the mutual funds.
#5.2 Gold ETFs
In gold ETF, investors can buy non-physical gold like stocks.
Buying gold ETF is like buying physical gold online from comfort of home.
Like equity ETF, gold ETFs too do not need active management.
This fund can also be managed passively as their price is based on gold prices.
Gold ETF invest in gold bullion directly.
As there is no physical gold involved here, over head of maintaining physical gold is completely eliminated.
Some of the famous gold ETF currently being traded in Indian stock market are as below:
- Axis Gold ETF
- Birla Sun Life Gold ETF
- Canara Robeco Gold ETF
- Goldman Sachs Gold Exchange Traded Scheme
- HDFC Gold Exchange Traded Fund
- ICICI Prudential Gold Exchange Traded Fund
- IDBI Gold ETF
- Kotak Gold Exchange Traded Fund
- Quantum Gold Fund (an ETF)
- Reliance Gold Exchange Traded Fund
- Religare Gold Exchange Traded Fund
- SBI Gold Exchange Traded Scheme
- UTI GOLD Exchange Traded Fund
#5.3 DEBT ETF
Debt linked ETF invest in securities that generates fixed income.
This is the reason why debt ETFs yields consistent but low returns.
Unlike stocks, buying a debt linked investment product in India is not easy.
As far as debt linked investment is concerned, common people know only bank deposits.
But where one can buy bonds? Where one can buy G-Sec? etc.
May be trained, pro-investors has access to such investment products. B
ut where a common man can source them? What is the procedure? The answer are not encouraging.
But with advent of Debt ETF, even common men can now include all debt instruments in their investment portfolio.
The best part of Debt ETF is, one can buy it online from comfort of home.
Like Equity ETF & Gold ETF, Debt ETF too does not need active fund management.
They too become a good passive investing instrument, hence though a debt product, has very low expense ratio.
Few famous DEBT ETF currently being traded in Indian stock market are as below:
- LIC MF G-Sec Long Term ETF
- Benchmark: Nifty 8-13 yr G-Sec Index
- Reliance ETF Liquid BeES
- Benchmark: Nifty 1D Rate Index
[Note: debt based ETF are not as popular as other ETFs]
#5.4 International ETF
International ETF allow Indian investors to have exposure in the overseas stock market.
Generally international ETF track international index like NASDAQ (Index in USA), Hang Seng (Index of Singapore) etc.
Two famous international ETF currently operational in India are as follows:
- Reliance ETF Hang Seng BeES
- Benchmark: HangSeng)
- MOSt Shares NASDAQ 100
- Benchmark: Nasdaq 100)
#6. ETFs Underlying Indices
ETFs Underlying Indices: Their performance & Fundamentals
- Return (5Year): 10.49%
- Return (Since inception): 10.63%
- No of constituents: 51
- Launch: year 1996
- P/E : 22.36
- P/B: 3.25
- Dividend Yield: 1.29%
- Top 5 stocks: HDFC Bank, ITC, HDFC, Infosys, RIL
Nifty Alpha 50
- Return (5Year): 21.80%
- Return (Since inception): 18.94%
- No of constituents: 50
- Launch: year 2012
- P/E : 21.36
- P/B: 2.48
- Dividend Yield: 1.21%
- Top 5 stocks: Vedadnta, Manappuram Fin, Gujarat Narmada Valley Fert, Indian Bank, Hindalco, V-Guard
- Return (5Year): 5.24%
- Return (Since inception): 12.04%
- No of constituents: 10
- Launch: year 2014
- P/E : 12.15
- P/B: 2.14
- Dividend Yield: 3.81%
- Top 5 stocks: ONGC, Coal India, IOCL, GAIL, Power Fin.
Nifty Dividend Opportunities 50
- Return (5Year): 8.65%
- Return (Since inception): 8.77%
- No of constituents: 50
- Launch: year 2011
- P/E : 16.38
- P/B: 2.88
- Dividend Yield: 2.78%
- Top 5 Stocks: ITC, TCS, Infosys, HUL, ONGC
Nifty India Consumption
- Return (5Year): 15.67%
- Return (Since inception): 12.75%
- No of constituents: 30
- Launch: year 2011
- P/E : 30.76
- P/B: 4.83
- Dividend Yield: 1.15%
- Top 5 Stocks: Maruti, ITC, HUL, M&M, Airtel
Nifty Full Mid Cap 100
- Return (5Year): 17.11%
- Return (Since inception): 13.95%
- No of constituents: 100
- Launch: year 2016
- P/E : 34.96
- P/B: 2.22
- Dividend Yield: 0.91%
- Top 5 Stocks: Federal Bank, MRF, Petronet LNG, REC, Tata Chemicals
Nifty Next 50
- Return (5Year): 18.86%
- Return (Since inception): 16.81%
- No of constituents: 50
- Launch: year 1996
- P/E : 27.02
- P/B: 3.58
- Dividend Yield: 1.55%
- Top 5 Stocks: IOCL, Vedanta, UPL, HPCL, Indiabulls Hsg.
What type of ETF’s are expected to be launched in India in coming years?
- Large Cap ETF’s (consisting of large cap shares)
- Mid Cap ETF’s (consisting of mid cap shares)
- Small Cap ETF’s (consisting of small cap shares)
- Growth ETF’s (consisting of growth stocks)
- Value ETF’s (consisting of value stocks)
- Index Linked ETF tracking major indices of world
- Fixed Income ETF’s
- ETF tracking real estate sector
- Currency tracking ETF’s
- Commodity tracking ETF’s
Index funds and ETFs are perfect example for passive investing. It is true that passive investing may not be as lucrative as actively managed investments, but passive style has its own advantages.
Primarily passive concepts suits personalities who like to build long-term wealth rather than making quick money.
There are ETF’s in America, which are managed by active investors. These are those ETF’s which is able to generate returns which even beat their underlying index.
I wish that actively managed ETF are quickly launched in India.
Why Exchange Traded Funds are more popular in USA than in India
It is true that Indian people love stocks and traditional mutual funds more than ETF. As a matter of fact, in all developing economies, ETFs are not as popular.
But there can be another reason which makes ETF less popular in countries like India. ETFs are financial products that tracks its underlying indices. Like India, most ETFs track SENSEX or NIFTY. What does this mean?
When a financial product tracks an index, it means its price can rise or fall only as much as the index rise or fall. It means, people can generate returns only average returns offered by indices.
In countries like India, stock market is not as mature like that of USA, Europe, Australia etc. It means that, if one invests intelligently, beating the market is comparatively easier. This is one reason why mutual fund companies prefer launch of traditional mutual funds more than an ETF.
You will mark this difference by comparing at Asset Under Management of a top mutual fund and a top ETF.
In countries like USA, markets have become overvalued. Those stock markets are dominated by global giants like Apple, Google, Microsoft, Shell, GM, P&G, Facebook, EXXON, Berkshire Hathaway etc.
These are all matured companies, which are liked not only in USA but across the world. No points of guessing why these stocks always trade at overvalued price levels. When underlying stocks trade at overvalued price levels, linked index (like NASDAQ) will also become overvalued.
In such a matured and overvalued market, beating market for fund managers is a herculean task. Hence financial products like ETFs flourish in such markets.
In India, ETF has become more famous because of gold price linked ETF. There are no similar product in traditional mutual fund basket which tracks gold price.
I hope, in times to come, when Indian stock market matures further, like gold ETF, other ETF products will also gain momentum in India.
[P.Note: These days with advent of web-portals like fundsindia.com etc, buying mutual funds has become very easy]
Best ETF to Invest in 2018 India
(Updated in April’2018)
- Kotak Banking ETF
- Reliance ETF Bank BeES
- Reliance Close Ended Eqty-Sr-A (G)
- Reliance ETF Junior BeES
- Kotak Nifty ETF
- Motilal MOSt Shares NASDAQ 100 ETF
- Reliance ETF Consumption
- Reliance ETF Hang Seng BeES
- ICICI Prudential Nifty iWIN ETF
- SBI – ETF Sensex
Check this link to see the details of India’s Top 50 ETF’s (Asset size, historical returns etc..) in tabulated form…
Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyse all securities before investing in one.