Most investors start their journey by buying stocks or mutual funds within their own country. But one needs to understand that the world’s biggest companies and fastest-growing sectors are spread across many countries. Have you ever thought about global giants like Apple, Microsoft, or Nvidia? Though they are not listed on Indian stock exchanges, they play an important role in the global economy.
So how can Indian investors participate in that growth?
One simple way is through International Exchange Traded Funds (International ETFs).
In this blog, we will break down what international ETFs are, how they work, their benefits and risks, and how Indian investors can start investing in them.
What Are International ETFs?
An International ETF is a type of exchange-traded fund that puts money into companies that are not listed in your home country. It is a basket of securities that trades on a stock exchange, just like any other ETF.
Example
Suppose you buy an ETF that tracks the Nasdaq-100 index. By purchasing just one unit of that ETF, you indirectly invest in companies like Amazon, Alphabet, or Microsoft. Instead of buying each stock separately, the ETF bundles them together and mirrors the index’s performance. This makes global investing simpler and more accessible for retail investors.
How do International ETFs work?
International ETFs work a lot like regular ETFs. The main difference is that their investments are in markets outside of India.
- The ETF tracks a global index: Most international ETFs track well-known global indices, and the goal of the ETF is to replicate the performance of that index.
- The fund invests in the same companies: To mirror the index, the ETF holds the same stocks in roughly the same proportions. For example, if Apple has a 10% weight in the index, the ETF will also allocate around 10% of its portfolio to Apple.
- The ETF is listed on a stock exchange: Investors can buy or sell ETF units through their trading account, just like buying a stock. The price changes throughout the trading day depending on demand, supply, and the value of the underlying assets.
- Returns follow the index: The value of the ETF usually goes up when the index goes up. Returns may be a little different, though, due to factors such as the expense ratio, tracking error, and currency changes.
How to Invest in International ETFs
- Open a Demat and Trading Account: Open a demat and trading account with a registered stockbroker to place orders. like Pocketful and begin your trading journey with ease.
- Research and Analyse International ETFs: Before you start ETFs investing, it is important to understand which index the ETF tracks. Some focus on the U.S market, while others track other global indices. Also, look for expense ratios, tracking error, etc.
- Decide your Allocation: Do not allocate or concentrate your entire capital in a single ETF. An allocation of 10-20% of your international investments, depending on your risk tolerance is suggested.
- Place a Buy Order: Once you have selected an ETF, check what price it is trading at, and then place a buy order.
Types of International ETFs
1. Global ETFs
These ETFs provide exposure to multiple regions and countries and offer global diversification. They allocate capital across established and developing economies, assisting investors in mitigating risks tied to single nations while capitalizing on global economic expansion patterns.
2. Developed Markets ETFs
These ETFs focus on mature economies with established financial systems like Japan, Germany, and the UK. These are typically viewed as steadier, exhibiting steady expansion, robust governance structures, and reduced fluctuation in contrast to developing economies.
3. Emerging Markets
These ETFs target fast-growing but more volatile economies like India. They can deliver stronger growth prospects, driven by fast economic development, urban expansion, and rising consumer demand, yet they also carry greater risk and more volatile market swings. It’s a trade-off.
4. Country-Specific ETFs
These ETFs narrow down to a single country’s market, like a Japan-focused Nikkei 225 ETF. These enable participants to gain focused access to particular national economies, industry shifts, or market possibilities inside that nation, suiting them for planned or opportunistic capital placements.
Read Also: How to Invest in ETFs in India – A Beginner’s Guide
Advantages of International ETFs
1. Global Diversification
One of the biggest reasons investors look at international ETFs is diversification. If your entire portfolio is invested in Indian stocks, your returns depend on how the Indian economy and related companies perform. International ETFs help spread that risk by giving you exposure to multiple countries and markets.
2. Lower Costs
Most international ETFs are passively managed, that is, they simply track an index instead of depending on fund managers’ expertise to actively pick stocks, which leads to lower expense ratios than actively managed funds.
3. Easy to Buy and Sell
International ETFs trade on stock exchanges just like regular shares, and hence, they are easy to buy and sell through a trading account.
Unlike mutual funds, which are priced only once at the end of the day, ETFs trade throughout market hours.
Disadvantages of International ETFs
1. Currency Fluctuations Can Affect Returns
One important factor that investors often overlook when investing in an international ETF is currency risk.
Since international ETFs invest in foreign markets, returns are affected not only by stock prices but also by exchange rate movements. Currency fluctuations can amplify returns.
2. Tracking Error
International ETFs replicate the performance of their underlying index, but at times they do not match it perfectly.
Small differences can occur because of factors like:
- fund expenses
- operational costs
- currency conversion
- delays in adjusting the portfolio
The difference between an ETF’s performance and the index’s is known as tracking error.
3. Investors are usually less Familiar with Foreign Markets
Domestic markets are easier for investors to understand because they are linked with local economic news and developments. Foreign markets, on the other hand, involve different economic conditions, regulations, and industries.
Read Also: Best ETFs in India to Invest
Ways to Invest in International ETFs
The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) define the rules for buying international ETFs.
There are two modes through which you can invest in international ETFs
- Indian Listed International ETFs on NSE & BSE, like the Motilal Oswal NASDAQ 100 ETF, through a demat account.
- Funds of funds (FoFs), which invest in mutual fund schemes that put their money into overseas ETFs.
Additionally, you can also use platforms that offer direct buying of ETFs on the NYSE or NASDAQ.
Taxation of International ETFs
- Funds of Funds: If you invest in global markets via FoFs, regarded as non-equity-oriented FoFs, on or after April 1, 2023, all gains will be treated as Short-term Capital Gains and taxed at your applicable income tax slab rate as per section 50AA.
- International ETFs listed on Indian exchanges: If you invest in international ETFs listed in India for more than 12 months, your gains are considered long-term and taxed at 12.5%. If you sell within 12 months, the gains are treated as short-term and taxed according to your income tax slab.
Guideline
Within the overall industry limit of US $1 billion, each Mutual Fund can invest up to US $300 million in overseas exchange-traded funds (ETFs).
List of International ETFs in India
| S.No | ETF | NAV (in₹) |
|---|---|---|
| 1 | Mirae Asset NYSE FANG+ ETF | 133.51 |
| 2 | Mirae Asset S&P 500 Top 50 ETF | 58.33 |
| 3 | Motilal Oswal Nasdaq Q 50 ETF | 90.7 |
| 4 | Motilal Oswal Nasdaq 100 ETF | 220.12 |
| 5 | Mirae Asset Hang Seng Tech ETF | 20.18 |
| 6 | Nippon India ETF Hang Seng BeES | 445.74 |
Read Also What is Gold ETF? Meaning & How to Invest Guide
Conclusion
Earlier, investing globally felt complicated, opening foreign accounts, dealing with currency conversions, and tracking unfamiliar markets. Today, it has become as simple as buying a stock from your trading app. Adding global exposure apart from domestic investments gives you a cushion. For example, there have been periods when US technology stocks performed strongly while Indian markets were consolidating. A consistent allocation can help you participate in global growth. For more market news and insights, download Pocketful – offering users zero brokerage on delivery trades and an easy to use platform designed for both beginners and experienced investors.
Frequently Asked Questions (FAQs)
Can I invest in international ETFs from India?
You can buy them directly through your Demat account if they are listed on NSE or BSE.
Are international ETFs risky?
They do carry normal market risks and factors like currency fluctuations and global events can affect their movements.
What is currency risk?
It means your returns can change depending on how the rupee moves against other currencies.
Should beginners invest in international ETFs?
Yes, they can invest but only as a small part of their portfolio.
Do I need a separate international account?
No, many international ETFs are available on Indian exchanges itself.
