Best Performing ETFs in India 2020

Best ETFs in India

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Exchange Traded Funds are index funds listed and traded on the stock exchange just like bonds, stocks, and commodities. ETFs are securities involving a basket of securities such as stocks, debt securities like derivatives and bonds, and commodities.

Most ETFs are registered with SEBI and are a perfect option for retail investors who have limited stock market knowledge and expertise. ETFs have given a new vignette of investing opportunities to institutional as well as retail investors all around the world.

ETFs in India have become the most prominent and successful securities option in India. They passively follow the benchmark indices like Nifty or Sensex by keeping the number of securities in a similar proportion as the underlying index.

ETFs share characteristic features of mutual funds and stocks. They are traded in the stock exchanges in the form of shares produced through creative blocks. Investors can buy or sell ETFs as per their requirements during the equity trading time but through a Demat account.

Best ETF in India

In India, ETFs are broadly classified into six categories: Gold ETFs, Nifty ETFs, Sector ETFs, Currency ETFs, Bond ETFs, and Global ETFs.

Best Index ETFs

Nifty ETF has the same composition of stocks as in the Nifty index. This means that the fluctuation of price in the ETF will be directly linked to Nifty. Nifty ETFs are a good option to invest when you are looking to diversify your portfolio.

Name1 year Return (in %)3 year Return (in %)Expense Ratio(%)AUM (Cr)
Motilal Oswal NASDAQ 100 ETF26.223.020.55557
HDFC Sensex ETF-15.223.110.0590
Edelweiss ETF NQ30-16.180.420.319
SBI – ETF Sensex-15.233.080.0823288
UTI Sensex ETF-16.822.960.075658
Best Gold ETFs

A gold ETF aims to track the price of domestic physical gold. It is a passive investment instrument based on gold prices. Gold ETFs are listed and traded on NSE and BSE like the stock of a company.

Name1 year Return (in %)3 year Return (in %)Expense Ratio(%)AUM (Cr)
Birla Sun Life Gold ETF45.4321.180.92126
Invesco India Gold ETF44.8420.980.4547
SBI – ETF Gold44.6220.80.51175
Kotak Gold ETF44.5220.820.55758
Axis Gold ETF44.4920.941.11168
UTI Gold ETF44.1720.761.06535
HDFC Gold ETF43.7420.421.071092
Best Debt ETFs

Debt ETFs trade in fixed return securities like government bonds and debentures.

Name1-year Return (in %)3-year Return (in %)Expense Ratio(%)AUM (Cr)
LIC Nomura MF G-Sec Long Term ETF – Reg – Growth-14.224.070.1221.3
Reliance ETF PSU Bank BeES-5.924.67
Reliance ETF Nifty BeES-14.722.81
Best Sector ETF

A sector ETF invests in the securities and stocks of a specific sector or industry. A sector ETF may track the benchmark index of banking stocks or automobile stocks.

Name1 year Return (in %)3 year Return (in %)Expense Ratio(%)AUM (Cr)
Nippon ETF Consumption-7.91-7.250.118.03
Nippon ETF Infra BeES-11.63-10.650.141.8
Kotak NV 20 ETF-18.7-2.970.2688
ICICI Prudential NV20 ETF-18.28-2.960.652275
Best Bond ETFs

These types of ETFs invest exclusively in bonds. They are similar to bond mutual funds as they hold a portfolio of bonds with different strategies.

Name1 year Return (in %)3 year Return (in %)Expense Ratio(%)AUM (Cr)
Nippon ETF Long Term Gilt16.2612.560.1310.35
SBI – ETF 10Y Gilt15.8711.381.110.39
LIC G-Sec LTE Fund15.6712.150.0511.06
Nippon ETF Liquid BeES1.120.610.147.02
Best Currency ETFs

Currency ETFs profit due to the fluctuations in the exchange rates of currencies. Companies purchase currencies based on the calculated predictions about the performance of the currency.

Name1 year Return (in %)3 year Return (in %)Expense Ratio(%)AUM (Cr)
Market Vectors- Indian Rupee/USD ETN-6.59-1.270.551.17

How to Choose Best ETF?

To choose the best ETF, one should not consider only one factor such as the cost, liquidity, expense ratio, underlying Index, or tracking error. Look at all the factors mentioned below to determine the best ETF for you:

1.     Liquidity

The liquidity of the ETF is one of the most important parameters that can be useful in determining profitability. Look for ETFs that provide sufficient liquidity. Liquidity of an Exchange Traded Fund depends on two major factors – Liquidity of the fund and liquidity of the shares being tracked by the ETF. It is important to monitor the liquidity of an ETF to ensure that the investment you make is profitable. It is also important to ensure that you make an exit from the fund whenever you want. When the market declines, the liquidity of ETF is tested. The trading of ETFs in the exchanges is simple and transparent to ensure that ETF’s liquidity is available all the time.

2.     Expense Ratio

The expense ratio of an ETF is the deciding factor when choosing the best ETF to invest in. The expense ratio is the amount of cost you require to run the fund. It can include various operational costs like compliance, distribution fee, management fee, etc. These assets are generally taken out form the assets of your ETF, lowering the return on investment for the investors. With a lower expense ratio, the cost of investing in the ETF is also low.

3.     Tracking Error

Another important factor that you need to consider is the tracking error in the Exchange Traded Funds. The tracking order, in simple words, is the amount by which the return of the fund, as indicated by its Net Asset Value (NAV), varies from the actual index return. In India, most Exchange Traded Funds don’t track their underlying index, instead, they only invest in some parts of the assets in the index, while the remaining is used to invest in other investment instruments.

This method is implemented in the Exchange Traded Funds to increase the number of returns. This is why you will find a high tracking error in most ETFs available for investing. If an ETF has a low tracking error, it means that the fund is following the benchmark index closely and a high tracking error resembles exactly the opposite. Hence, if you are looking to invest in Index ETFs, you should look for ETFs with minimum tracking error.

Advantages of Investing ETFs in India

ETFs are a good option for passive investing in the stock market in India. ETFs deliver lower operating costs in taxable accounts as compared to standard open-end funds, increased tax efficiency, greater transparency, and vibrant investing options. Here are the benefits of investing in ETFs.

Trade Flexibility

As they are marketable securities, they can be easily traded on the stock exchange. One can buy and sell any time during the trading hours. Trading in ETFs is more flexible than other investment methods like PPFs and mutual funds.

Fair Cost

Exchange Traded Funds are insured on the exchange and have typically lower expense ratios than most mutual funds. The expense ratio of ETF for active equity funds is generally less than 0.5% and it gives a long term growth option.

Transparency

As ETFs track the underlying index, ETF monitoring Nifty 50 will keep the largest companies in the same proportion as Nifty.

Diversification

In India, ETFs monitor several investment products like Nifty, Nifty 50, Nifty Low Vol 20, Gold Nifty, and others. With ETFs, you can have a diversified investment like index reflected stock market.

Limitations of Investing in ETFs in India

Apart from many advantages, there are a few limitations involved with investing in ETFs, which are as follows:

Demat Account Required

To invest in ETFs, the retail investors need to have a Demat account. However, it is not required if you want to invest in mutual funds.

Transactions Only Available at Stock Exchanges

ETF transactions only take place on the stock exchange through the registered stock brokers. Mutual funds investors can trade their investments fully or partially through AMC whereas, ETF units can only be traded on the underlying exchanges. ETF’s liquidity depends on the volume of transactions taking place in the exchange.

Limited Returns

ETFs replicate the market returns and hence, investors investing in ETFs are giving up the opportunities to earn alpha returns. Actively managed investments like mutual funds aim to generate alpha returns or excess over market benchmark returns. While ETFs are passively managed investments, they will not provide alpha returns.

Conclusion

Trading and investing in India is rising and there is a huge population of new and emerging investors in the country who don’t have much expertise in the trading world. The country has become a popular destination for investing due to its emerging economy. With the launch of trading in the Exchange Traded Funds in 2001, the investment feature has been gaining huge popularity since then. ETFs are designed to track a pool of securities listed in the stock exchanges. The securities may include bonds, mutual funds, stocks, commodities, currency, etc. Due to their several benefits over shares and mutual funds, ETFs have been a preferred investment option for many investors.

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