India exchange-traded funds (ETFs) are comprised of securities traded in India. This is an emerging market play, meaning it carries a higher risk than more mature markets. Higher risk can mean higher reward, but it can also mean steeper selloffs.
After a particularly robust 2017, many India ETFs were hit hard in the first nine months of 2018, with pressure on India's economy and equity market taking its toll. A newly introduced 10 percent tax on long-term capital gains went into effect as of April, whereas previously, the selling of shares held for more than a year was tax-free. This caused some Indians to pull money out of long-term investments while the redemption process was still tax-free.
India’s economy is growing, but is not entirely stable and could be subject to volatility. The slower pace of economic growth of late, relative to other emerging economies has negatively impacted foreign investment. Additionally, there is some caution ahead of next year's elections. Emerging market investors, in general, are also keeping on eye on the impact from the U.S. trade policy. However, long-term, India remains of interest to emerging market investors, as the outlook still suggests massive expansion.
We have selected India ETFs that had high returns in 2017; despite some weakness in 2018, over the longer term, they look well positioned to take advantage of current economic trends. But an India ETF is not a buy-and-hold investment. You must consistently monitor not only each ETF’s performance but also the condition of the economy in India.
Here are the top five India ETFs. All information is accurate as of September 28, 2018.
1. The Direxion Daily MSCI India Bull 3x ETF (INDL)
INDL uses the MSCI India Index as its benchmark. While it aims to invest 80% of its assets in securities from the index, the other 20% may be invested in leveraged financial instruments. The goal is to achieve a 300% return. That is, the fund tries to grow at three times the rate of the index.
This adds a great deal of risk because losses can be accelerated in the same way gains can when holdings are leveraged. The focus on large-cap and mid-cap stocks helps offset some of the risks.
- Avg. volume: 42,460
- Net assets: $97.81 million
- Yield: 0.35%
- 2017 return: 128.31%
- 2018 YTD return: -12.92%
- Expense ratio (net): 1.04%
2. The Columbia India Small Cap ETF (SCIN)
This is another small-cap India ETF benchmarked to the MVIS India Small-Cap Index. The stocks in the index are weighted by capitalization, so the ETF may weight the stocks similarly.
The fund aims to keep 80% of its assets in securities from the index but may have as much as 95% of assets invested in the index at any given time.
- Avg. volume: 4,752
- Net assets: $21.30 million
- Yield: 0.92%
- 2017 return: 64.65%
- 2018 YTD return: -23.80%
- Expense ratio (net): 0.86%
3. The iShares MSCI India Small-Cap (SMIN)
SMIN attempts to achieve the same performance as the MSCI India Small Cap Index. It may, from time to time, invest in securities that are not in the index but that are expected to behave similarly to securities that are in the index.
Note that the companies represented are in the bottom 14% of all Indian companies in terms of market capitalization.
- Avg. volume: 47,822
- Net assets: $282.33 million
- Yield: 2.54%
- 2017 return: 60.86%
- 2018 YTD return: -14.82%
- Expense ratio: (net) 0.75%
4. The VanEck Vectors India Small-Cap ETF (SCIF)
For investors who like both small-cap stocks and Indian stocks, SCIF is an opportunity to invest in this specialized basket of stocks: the MVIS India Small-Cap Index.
The fund may use depositary receipts in addition to investing directly in securities from the index. Note that micro-cap companies are included in the index, so this investment can carry higher risk.
- Avg. volume: 45,365
- Net assets: $216.20 million
- Yield: 0.14%
- 2017 return: 66.34%
- 2018 YTD return: -26.32%
- Expense ratio (net): 0.72%
5. The Columbia India Infrastructure ETF (INXX)
This ETF follows the Indxx India Infrastructure Index as its benchmark. At least 80% of assets go into companies that are listed on the index.
The focus is on companies involved in infrastructure, so this would be an investment for those who think India is likely to grow its infrastructure to meet the needs of the world’s second-largest population (behind China). This focus gives investors the opportunity to invest in a narrow slice of the Indian economy.
- Avg. volume: 9,501
- Net assets: $36.74 million
- Yield: 0.76%
- 2017 return: 49.44%
- 2018 YTD return: -15.85%
- Expense ratio (net): 0.84%
The Bottom Line
For those willing to take on more risk to achieve higher returns, these five ETFs offer exposure to the emerging market of India. But an investment in these ETFs should be monitored closely. Because ETFs trade like stocks, a wary investor can sell shares when returns are no longer attractive.