US-based, India focused exchange traded funds, or ETFs, are low-cost investment vehicles that allow NRIs to gain exposure to the Indian stock market while maintaining liquidity and diversification. An ETF is a basket of stocks that mirrors the holdings of an underlying index such as the S&P CNX Nifty.
ETFs have two significant benefits over mutual funds. As ETFs mirror an existing index, they are passively traded, resulting in low overhead and expense ratios. ETFs are also traded intraday, resulting in significantly better liquidity and transparency than mutual funds, which can be traded only at the end of each trading day.
Below we take a detailed look at the five largest India focused ETFs by AUM as of Feb,2020, including investment strategy and performance.
| Name | AUM in MM | Index | Expense Ratio |
| iShares MSCI India ETF | $5,518 | MSCI India Index | 0.69% |
| WisdomTree India Earnings Fund | $949 | WisdomTree India Earnings Index | 0.85% |
| iShares India 50 ETF | $753 | S&P CNX Nifty Index | 0.94% |
| iShares MSCI India Small-Cap ETF | $303 | MSCI India Small Cap Index | 0.76% |
| Invesco India ETF | $108 | FTSE India Quality and Yield Select Index | 0.82% |
iShares MSCI India ETF
iShares MSCI India ETF (INDA) is the largest and one of the best known India-focused ETFs with over $5bn in AUM. INDA is also the most liquid India focused ETF with an average daily trading volume of more than 3.6 MM shares.
This ETF tracks the MSCI India Index, which is a market cap weighted index comprising of 84 equities representing 85% of the Indian equity market and focusing primarily on large and mid-cap sectors. This is an ideal ETF for anyone wanting to invest in a single ETF to gain exposure to the Indian market as it covers a wide spectrum of Indian stocks.
iShares MSCI India Top 10 Holdings as of 9/30/19
| Name | Sector | Weight (%) |
| RELIANCE INDUSTRIES LTD | Energy | 11.63 |
| HOUSING DEVELOPMENT FINANCE CORPOR | Financials | 9.86 |
| INFOSYS LTD | Information Technology | 7.63 |
| TATA CONSULTANCY SERVICES LTD | Information Technology | 5.33 |
| AXIS BANK LTD | Financials | 4.26 |
| HINDUSTAN UNILEVER LTD | Consumer Staples | 3.94 |
| ICICI BANK LTD | Financials | 3.01 |
| ITC LTD | Consumer Staples | 2.43 |
| BHARTI AIRTEL LTD | Communication | 2.26 |
| MARUTI SUZUKI INDIA LTD | Consumer Discretionary | 2.22 |
WisdomTree India Earnings Fund
WisdomTree India Earnings Fund (EPI) is the second largest India focused ETF, with approximately $900mm in AUM, four times smaller than the largest fund. Unlike the iShares MSCI India ETF, EPI’s investment strategy is to weight its holdings by earnings, rather than market capitalization, mirroring its own WisdomTree India Earnings Index. EPI invests in Indian companies with positive trailing 12-month earnings that meet WisdomTree’s minimum market capitalization and liquidity requirements.
Since inception in 2008, EPI has returned 0.48%, compared to 1.75% for WisdomTree India Earnings Index and 1.66% for MSCI India Index over the same period. EPI has a relatively low expense ratio of 0.85%.
Given EPI’s focus on profitability, 40% of the fund’s assets are comprised of its ten top holdings, with overall holdings in 315 different companies.
WisdomTree India Earnings Fund Top 10 Holdings as of 9/30/19
| Name | Sector | Weight (%) |
| RELIANCE INDUSTRIES LTD | Energy | 10.22 |
| HOUSING DEVELOPMENT FINANCE CORPOR | Financials | 7.21 |
| INFOSYS LTD | Information Technology | 6.31 |
| TATA CONSULTANCY SERVICES LTD | Information Technology | 3.51 |
| OIL & NATURAL GAS CORP LTD | Financials | 3.34 |
| INDIAN OIL CORP | Energy | 2.09 |
| HCL TECHNOLOGIES LTD | Information Technology | 1.95 |
| COAL INDIA LTD | Energy | 1.89 |
| KOTAK MAHINDRA BANK LTD | Financials | 1.65 |
| AXIS BANK LTD | Financials | 1.61 |
iShares India 50 ETF
With AUM of approximately $750mm, iShares India 50 ETF (INDY) mirrors the S&P CNX Nifty Index, also known as the Nifty Fifty. INDY tracks the 50 largest, most liquid companies listed on India’s National Stock Exchange, representing 65% of the market cap of the 1600 companies listed on the exchange.
Since inception in 2009, INDY has had an average annual return of 4.51% as of September 30, 2019. YTD, the index is performing better than average, up 5.61% as of 10/21/2019.
Given INDY’s focus on the 50 companies of the Nifty Fifty Index, the fund is fairly concentrated with 59% of its holdings invested in ten companies.
iShares India 50 ETF Top 10 Holdings as of 9/30/19
| Name | Sector | Weight (%) |
| RELIANCE INDUSTRIES LTD | Energy | 10.08 |
| HDFC BANK LTD | Financials | 9.53 |
| HOUSING DEVELOPMENT FINANCE CORPOR | Financials | 7.51 |
| ICICI BANK LTD | Financials | 5.88 |
| INFOSYS LTD | Information Technology | 5.85 |
| TATA CONSULTANCY SERVICES LTD | Information Technology | 4.5 |
| KOTAK MAHINDRA BANK LTD | Financials | 4.49 |
| ITC LTD | Consumer Staples | 4.41 |
| LARSEN AND TOUBRO LTD | Industrials | 3.72 |
| HINDUSTAN UNILEVER LTD | Consumer Staples | 3.13 |
iShares MSCI India Small Cap ETF
With $303mm in AUM, iShares MSCI Small Cap India ETF (SMIN), is the fourth largest India focused India ETF. Mirroring the MSCI India Small Cap Index, SMIN invests in publicly-traded small capitalization Indian equities, representing the bottom 14% of the free-floating market cap of Indian equities, currently comprised of 262 companies.
Since inception in 2012, SMIN has returned 5.65% vs the benchmark return of 6.28% for MSCI India Small Cap Index. YTD returns, though, are -9.49% due to the flight to safety and better liquidity of the larger capitalized Indian companies.
Due to SMIN’s focus on small cap companies, the fund is quite well-diversified, with its top ten holdings representing 15.54% of its total.
iShares MSCI India Small Cap ETF Top 10 Holdings as of 9/30/19
| Name | Sector | Weight (%) |
| INFO EDGE INDIA LTD | Communication | 2.18 |
| APOLLO HOSPITALS ENTERPRISE LTD | Health Care | 1.95 |
| FEDERAL BANK LTD | Financials | 1.93 |
| CROMPTON GREAVES CONSUMER ELECTRIC | Consumer Discretionary | 1.55 |
| JUBILANT FOODWORKS LTD | Consumer Discretionary | 1.53 |
| AU SMALL FINANCE BANK LTD | Financials | 1.46 |
| RBL BANK LTD | Financials | 1.37 |
| MPHASIS LTD | Information Technology | 1.35 |
| TATA GLOBAL BEVERAGES LTD | Consumer Staples | 1.3 |
| INDRAPRASTHA GAS LTD | Utilities | 1.24 |
Invesco India ETF
With $108mm in AUM, Invesco India ETF (PIN) tracks the FTSE India Quality and Yield Select Index, which reflects the performance of relatively high quality and high yield Indian securities. This index evaluates all securities in the FTSE India Index, excludes those in the bottom 10% based on the 12-month trailing dividend yield, further eliminating those in the bottom 10% based on quality scores.
Prior to June 2019, PIN was tracking an actively managed index by Indus Advisors, called the Indus India Index.
Since inception in 2008, PIN has returned 0.33%, though its YTD performance is improved at 0.84%. PIN’s ten top holdings, which comprise 50% of their portfolio, have significant overlap with the iShares MSCI India Index ETF.
Invesco India ETF Top 10 Holdings as of 10/21/2019
| Name | Sector | Weight (%) |
| RELIANCE INDUSTRIES LTD | Energy | 11.03 |
| HOUSING DEVELOPMENT FINANCE CORPOR | Financials | 9.59 |
| INFOSYS LTD | Information Technology | 8.60 |
| TATA CONSULTANCY SERVICES LTD | Information Technology | 5.61 |
| HINDUSTAN UNILEVER LTD | Consumer Staples | 4.52 |
| MARUTI SUZUKI INDIA LTD | Consumer Discretionary | 2.67 |
| ITC LTD | Consumer Staples | 2.19 |
| BAJAJ FINANCE LTD | Financials | 2.17 |
| BHARTI AIRTEL LTD | Communication Services | 1.90 |
| HCL TECHNOLOGIES LTD | Information Technology | 1.79
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Note: VanEck Vectors India Small Cap Index ETF is larger than Invesco India ETF, but we have chosen to ignore it for this analysis due to its volatile nature.
Conclusion
India focused ETFs are a low cost way to maintain exposure to the Indian stock market while benefiting from the liquidity and diversification of investing in an index. To get started, click here to see further details of India focused ETF investment opportunities through Hemista.