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DEFINITION of 'India ETF'

India ETFs are designed to track the performance of assets listed on a stock exchange in India. The nation currently maintains about 10 different exchanges with the most popular being the National Stock Exchange of India. The NSE provides access to the most widely traded stocks in India and different indexes like the NIFTY 50. An India ETF may track the performance of a major index, group of sectors or different cap sizes. This provides investors with broad exposure to the burgeoning Indian economy through a diversified asset. 

BREAKING DOWN 'India ETF'

India ETFs have become a promising investment as economic growth continues to outpace most countries around the world. India is particularly proficient in knowledge-based work like information technology, finance, and healthcare. Focusing on these sectors may result in greater upside for companies operating in a technical capacity. In particular, experts anticipate the India stock market to experience substantial growth in the technology sector, as the government continues to emphasize mass digitization. In addition, greater adoption of electronic payment platforms, growth of a middle-income group, and more consumer spending promises to drive economic growth and by extension, the stock market. India is already one of the most promising economies after posting high single-digit growth for multiple years. Over the next decade, financials, consumer discretionary and technology sectors are expected to support above average returns. 

US investors can gain exposure to India's thriving markets with exchange-traded funds like the iShares MSCI India ETF (INDA) and iShares MSCI India Small-Cap (SMIN), to name a few. These funds often charge higher expense ratios than most domestic funds, but it should be noted administrative costs are higher with international investments due to increased exchange costs and brokerage fees for trading on an international exchange. For example, the iShares MSCI India ETF holds an expense ratio of 0.68% compared to the average fund that charges 0.44%.  

Risks of an 'India ETF'

The Indian economy and stock market offer investors significant potential growth, but some serious risks still remain. The government continues to drive demonetization efforts, implement a goods and services tax, and deleverage corporations, each of which could ignite a slowdown. In addition, India faces an uphill battle in transitioning from an emerging market to developed economy. The country must improve the economy, but also public policy, international relations, human rights, and basic infrastructure. Failure to address each segment can result in a withdrawal of foreign investors, slowdown in economic growth and drawdowns in the stock market. 

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