Global ETF

What is a Global ETF?

A global ETF is a mutual fund product that uses the money from investors to purchase international stocks. The portfolio of a global ETF is constructed in such a way that it mirrors an international index like the Hang Seng, NASDAQ 100, NASDAQ Quality 50, S&P 500 or NYSE FANG+. 

For example, a global ETF in India may include shares of tech companies in the U.S. or emerging multinational companies from China. Some funds even target specific themes, like technology, non-finance, or on a global scale.

The primary objective of global ETFs is to provide Indian investors with a way to gain exposure to high-quality and niche foreign companies, which might otherwise be out of their reach. With a single investment in a top global ETF, investors can effectively reduce their investment risk with geographical diversification and capitalise on international growth opportunities.

How Do Global ETFs Work?

Global ETFs function like traditional exchange-traded funds but with a focus on international assets and indices. Since these funds are linked to international indices, their performance mirrors that of their benchmark index. If the benchmark index rises, the value of these funds will also increase and vice versa. 

All of the funds in the global ETF list in India track and index and are managed passively by the fund managers. This essentially means that the fund managers will not change the composition of the fund except when there is a change in the underlying index it mirrors. Due to such passive management, global ETFs often tend to have lower expense ratios compared to actively managed funds.

Furthermore, unlike traditional mutual funds, global ETFs are listed on Indian stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Interested investors can purchase and sell the units of a global ETF directly through the exchanges at the prevailing prices, similar to stocks. The ability to freely trade units electronically makes these funds one of the most accessible, convenient and cost-effective ways to invest in the global markets.

Types of Global ETFs

Funds in the global ETFs list in India may be classified as follows, depending on the indices they reflect and the assets they invest in. 

1. Broad-Market Global ETF: These may be the best international ETFs if you want exposure to a wide range of stocks in international markets. They are designed to track the performance of global indices that reflect the entire market in a country or a large segment of it. Typically, these ETFs cover companies across various sectors and offer investors a way to participate in the overall growth of global economies. 
2. Country-Specific Global ETF: Country-specific global ETFs focus on the equities or securities of a single country. This gives investors an opportunity to capitalise on that nation’s economic trends or growth potential. Such ETFs are ideal for those who wish to target specific countries based on their economic outlook or market conditions while gaining easy access to local stocks.
3. Sectoral Global ETF: Sectoral global ETFs in India concentrate on a particular industry or sector from international markets. These sectors may include technology, healthcare or energy, among others. They allow investors to invest in the growth of global leaders and innovators within a specific sector. Some sectoral ETFs may focus on several related sectors as well.
4. Debt Global ETFs: These are global ETFs that track indices in foreign debt markets. They invest in fixed-income securities like government bonds, corporate bonds or other debt instruments from foreign countries. This portfolio composition allows investors to diversify across global bond markets and gain exposure to varying interest rate environments, credit qualities and economic conditions.

Benefits of Investing in Global ETFs

If you wish to gain exposure to the international market and diversify your portfolio beyond domestic assets, top global ETFs could be an attractive option. Here are the key benefits of investing in foreign ETFs in India.

1. Access to Foreign Stocks:Global ETFs invest in unique technology companies like Alibaba, Tencent, Netflix and Apple, among others. Many such foreign stocks offer strong growth potential, which you can tap into by investing in these funds.
2. Global Diversification: By including some of the best international ETFs in your portfolio, you can diversify your portfolio across multiple countries and economies. This reduces the risk associated with being overly dependent on the Indian market's performance and can ensure a better balance in your investments. 
3. Cost-Effective Exposure: Investing in the best global ETF in India is often a more cost-effective way to access international markets compared to buying individual foreign stocks. Most top global ETFs have low expense ratios, making them an affordable option for global diversification.
4. Flexibility and Liquidity: Since the units of a global ETF are traded on stock exchanges, there are usually no liquidity issues with such funds. Furthermore, you also get the flexibility to buy and sell them at any point in time during market hours, unlike traditional mutual funds. 

Who Should Invest in Global ETFs?

The funds from the global ETF list cater to a wide range of investor profiles. Here is a quick overview of who can consider investing in these investment funds. 

1. Diversification-Seeking Investors: Investors looking to offset investment risks commonly associated with the domestic equity market can consider purchasing a few of the best international ETFs. This way, they can gain exposure to various countries, which can help reduce losses due to domestic market underperformance. 
2. Risk-Aggressive Investors: Although global ETFs can diversify risk, their performance is still dependent on the international indices they track. Since these international indices are also susceptible to market fluctuations and volatility, these funds are more suited for investors with a high risk tolerance level and the capacity to handle market volatility. 
3. Long-Term Investors: Global ETFs, especially those that track international equity indices, perform well over the long term. This makes them more suitable for investors with a long-term investment horizon.
4. Investors Looking to Hedge Against Currency Risks: Global ETFs are suitable for investors looking to hedge against the depreciation of the Indian rupee. Investing in funds from the global ETF list could help protect your portfolio from domestic currency fluctuations.
5. High-Growth Sector Investors: Top global ETFs often include companies leading innovation across the globe from high-growth industries like technology, healthcare and renewable energy. This makes them a smart choice for investors seeking high returns.

How to Choose the Right Global ETF?

Choosing the best global ETF is crucial for building a well-diversified portfolio that aligns with your financial goals. Here is a guide that can help you select the top global ETFs that match your needs.

1. Identify Investment Goals: Before selecting a global ETF in India, you must first determine your financial goals, which can be anything from diversification and sector-specific exposure to currency hedging. The ETF that is ideal for you must always align with your risk tolerance, investment horizon and investment objectives.
2. Evaluate the ETF’s Underlying Index: The performance of an international ETF depends on the index it tracks. Therefore, when choosing the best global ETF for your needs, you must make sure to assess the index's composition and performance. 
3. Compare Expense Ratios: Although global ETFs are passively managed, they still incur certain management fees and trading costs. Since expense ratios can impact your returns over time, it is advisable to prioritise funds with low expense ratios, especially if you are investing for the long term. 
4. Examine Liquidity and Trading Volume: Not all foreign ETFs in India may have enough trading volumes. As an investor, you must focus on choosing funds with enough liquidity to make purchasing and selling units seamless without a significant price impact.
5. Check Fund Performance: While past performance is not a guarantee of future returns, reviewing historical data can help you make informed investment decisions. Opting for the best global ETF with a proven track record and consistent performance is key to ensuring long-term wealth creation.

How to Invest in Global ETFs with Angel One?

Step 1: Log in to Angel One trading account using your mobile number/client ID and password.

Step 2: Select ‘ETF’ on the homepage and choose a global ETF from the list of ETFs in India. 

Step 3: Tap ‘Buy’ and choose between the one-time investment and SIP option.

Step 4: Enter your desired quantity and price of the ETF, then click ‘Buy’ to place an order.

Global ETFs vs International Stock Investing

Investing in global ETFs and individual international stocks are two popular ways to access the global markets. Although both these approaches have the same objective, they differ significantly in several aspects. Here are the key distinctions between these two investing approaches.

Risk Factors in Global ETFs

Although investing in global ETFs has its benefits, it is essential to understand the risks involved. Here are some of the key risks involved with these investment funds. 

1. Currency Risk: Global ETFs are impacted by currency fluctuations. Any changes in the currency exchange rate can impact the returns of even the best international ETFs, especially if the Indian rupee strengthens against foreign currencies. 
2. Market Volatility: The performance of a global ETF in India depends on the foreign markets it tracks. If the international markets grapple with political instability, economic downturns or geopolitical tensions, the fund can experience significant volatility. 
3. Limited Control Over Holdings: Global ETFs mirror international market indices, which essentially means you have no direct control over the fund’s holdings. This can be detrimental if the stock choices do not align with your personal preferences or objectives.
4. Liquidity Risk: While most ETF global options are highly liquid, funds that track smaller or emerging markets may face liquidity challenges. This can make it harder to buy or sell units at the desired prices.
5. Tracking Error: Tracking error occurs when the returns from a global ETF do not match with its underlying index. This can happen due to a wide range of factors like high expense ratios or improper index replication. Even the top global ETFs have tracking errors, which can impact the returns.

Performance Metrics for Global ETFs

Evaluating the performance of a global ETF is essential to ensure it aligns with your investment goals. Here are a few performance metrics that you must focus on when analysing the best global ETFs.

1. Returns: For a global ETF to be a reliable investment option, it must deliver consistent returns relative to its benchmark index. When examining the risk-adjusted return, remember to focus on metrics like the Sharpe ratio, which indicates the risk-adjusted returns of a fund.
2. Expense Ratio: The expense ratio indicates the annual cost of managing the fund and can impact the returns from a global ETF. It is advisable to invest in funds with lower expense ratios as they retain more of the fund's earnings. 
3. Tracking Error: Tracking error indicates how closely an ETF global fund follows its benchmark index. Top global ETFs will usually have minimal tracking error, which ensures that their performance reflects the index accurately.
4. Trading Volume: The trading volumes of global ETFs indicate just how liquid the funds are. Investing in funds with high liquidity is advisable since it can make liquidating investments more seamless with minimal impact on the price.

Tax Considerations for Global ETFs

Before you invest in the best international ETFs, you must understand how they are taxed. The tax rates for global ETFs are based on the type of fund, holding period and date of transaction. In the Union Budget 2024, the government introduced new ETF taxation rules, which came into effect from July 23, 2024. Check out the details of global ETF taxation below.

1. International Equity ETFs:
• Short-Term Capital Gains: As per the old rule, for international equity ETFs listed in India, any profits earned after a holding period of 36 months or less were considered short-term capital gains (STCG) and taxed at the slab rates. As per the new rule, profits earned after a holding period of 12 months or less are considered STCG and taxed at the slab rates. 
• Long-Term Capital Gains: Here, the tax rates depend on the purchase date. As per the old rule, for global ETFs purchased before April 1, 2023, and held for more than 36 months, LTCG was taxed at 20% with indexation. For international equity ETFs purchased after April 1, 2023, the gains were always considered short-term and taxed at slab rates, without considering the holding period. 

However, as per the new rule notified in Budget 2024, for international equity ETFs in India with holding periods of over 12 months, the profits are considered LTCG and taxed at 12.5%.

2. International Debt ETFs:
• Short-Term Capital Gains: Here too, the tax rates depend on the purchase date and the transfer date. According to the old rule, for international debt ETFs purchased before April 1, 2023, gains on funds held for 36 months or less were classified as STCG and taxed at slab rates. For funds purchased after April 1, 2023, the gains were always recognised as short-term and taxed at slab rates.

As per the new rule, however, profits on international debt ETFs purchased before April 1, 2023, and held for 24 months or less are considered STCG and taxed at slab rates. Taxation for STCG on funds purchased after April 1, 2023, remains unchanged. 

• Long-Term Capital Gains: As per the old rule, profits on debt-based foreign ETFs in India purchased before April 1, 2023, and held for more than 36 months, profits are considered LTCG and taxed at 20% with indexation. As per the new rule, if the holding period exceeds 24 months, profits are tagged as LTCG and taxed at 12.5%. 

For global debt ETFs purchased after April 1, 2023, the gains are always considered short-term and taxed at slab rates.

Top 5 Global ETFs Based on 1-Year Returns

Note: The top global ETFs list provided here is as of January 23, 2025. The ETFs have been sorted based on their 1-year returns.

1. Mirae Asset NYSE FANG+ ETF: This global ETF in India is benchmarked against the NYSE FANG+ index, which comprises the top tech stocks in the U.S. markets. This is one of the best international ETFs for investors seeking exposure to some of the most highly-rated tech giants like Meta, Apple, Amazon, Alphabet and Netflix. 

Key Metrics: 

• 3-year Returns: 182.60%
• 5-year Returns: 185.83%

1. Mirae Asset S&P 500 Top 50 ETF: This global ETF is designed to mirror the composition of the S&P 500 Top 50 index, which consists of the 50 largest firms in the S&P 500 index. It is suitable for investors who want to diversify their portfolio to include the best of U.S. stocks. The top companies in this ETF include big firms like Apple, Microsoft and Tesla.

Key Metrics: 

• 3-year Returns: 114.38%
• 5-year Returns: 117.44%

1. Motilal Oswal Nasdaq Q50 ETF: Another popular fund on the global ETF list in India, this investment vehicle tracks the movement of the Nasdaq Q-50 index. This fund is preferred by investors who want exposure to emerging stocks in the U.S. market because it includes the 50 companies that are next in line to be included in the Nasdaq-100 index. 

Key Metrics: 

• 3-year Returns: 57.72%
• 5-year Returns: 32.95%

1. Motilal Oswal NASDAQ 100 ETF: This global ETF in India reflects the Nasdaq 100 index, which is composed of the top 100 non-financial companies on the Nasdaq stock exchange. It offers exposure to industry leaders in different market sectors like telecommunications, hardware and software, biotechnology and retail, among others. 

Key Metrics: 

• 3-year Returns: 98.39%
• 5-year Returns: 228.77%

1. Mirae Asset Hang Seng TECH ETF: The Mirae Asset Hang Seng TECH ETF tracks the movement of the Hang Seng TECH index, which includes the top technology companies in the Hong Kong market. A closer look at its historical returns reveals that despite poor returns earlier, this foreign ETF in India has been performing well over the past year.

Key Metrics: 

• 3-year Returns: 3.18%
• 5-year Returns: -4.12%