Top 5 ETFs in India to invest in 2024 using SIP

If you are one of the savvy Investors, you would have realised by now that Mutual funds are not always “Sahi hain” due to inherent costs and almost on-par performance with the Market indices over the years.

The SPIVA India Scorecard (PDF Link) which compares the performance of actively managed Indian mutual funds with their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons had some interesting results in June 2020 - Over the longer horizon of 10-year period ending June 2020, 67.67 percent of the actively managed large cap equity funds in India underperformed the large cap benchmark.

(Source: SPIVA India & MoneyControl)

If you are time-strapped for doing direct equity investments or research related to direct equity investments, which most retail investors usually are, Exchange Traded Funds or ETFs are one of the good instruments to consider. They have grown tremendously in popularity over time due to lower fees and expenses compared to Mutual funds. 

What are ETFs and why are they growing in popularity?

ETF or Exchange Traded Funds is a type of Investment that simply replicates an underlying index or commodity. Since they are usually not actively managed by a Fund Manager, the fees and expenses are usually quite low compared to a Mutual Fund.

ETFs are actively traded on a stock exchange (just like shares of any company) and can be freely purchased and sold using your brokerage account like Zerodha or Upstox. ETFs do not have any minimum holding period or any lock-in period. Even from a taxation perspective, one simply has to pay tax when ETFs are sold and a profit is booked on the same (just like equity stocks).

Why SIP in ETF?

Just like SIP in Mutual Funds, One can create or plan a SIP in ETF as it allows you to systematically invest in quality companies without having to do much research on Individual scripts on monthly basis. Since ETF usually has either a reputed Fund Manager or tracks some commodity like Gold, SIP allows you to invest money over longer time horizon without worrying about ups and downs of overall market or sector or even about macro-economics. However, just like Mutual funds, they are also subject to market risks and there is no guarantee that past performance would be repeated. It can also under-perform or over-perform based on overall equity market.

Setting up a SIP for such ETF is very straightforward in most Brokerage account. Here is one such example from Zerodha.

While there are multiple ETFs available on NSE, We have shortlisted the top 5 ETF according to us, which one can consider for investors who do not want to put money in actively-managed equity schemes. We have also picked one International Exposure ETF along with Gold ETF to help you diversify your risks geographically. 

1. Nippon India ETF Bank BeES

As the name suggests this ETF mainly invests in shares of Banks and Financial Services listed on NSE. It has decent exposure to both Private as well as PSU banks. While one can try to cherry-pick top banks like HDFC Bank, ICICI Bank, SBI, IDFC First Bank etc, This ETF would provide a decent portfolio exposure to Leading banks in India. As more and more millennials gets access to banking in Tier - II and Tier III cities, One can easily allocate 10-20% of their ETF Portfolio to Banks.

The ETF holds the following 10 banks as their top holdings.

Name of the Bank	Market Cap	% of Total Holding
HDFC Bank	870,323.67	26.89%
ICICI Bank	431,873.02	20.01%
Axis Bank Ltd	230,847.67	16.59%
Kotak Mahindra Bank Ltd	374,546.33	13.55%
State Bank of India	362,651.59	10.93%
IndusInd Bank Ltd	84,196.60	4.85%
Bandhan Bank Ltd	57,465.61	2.11%
Federal Bank Ltd	16,936.59	1.46%
IDFC First Bank Ltd	38,012.74	1.00%
RBL Bank Ltd	14,769.90	0.97%

A monthly SIP in such ETF over last 10 years would have given you >15% Annualised Returns.

Investment Period	Rs. 10K SIP Starting	Investment Value	Current Value	Absolute Returns	Annualised Returns
1 Year	1st March 2020	Rs. 1,20,000	Rs. 1,79,184.12	49.32%	102.98%
3 Years	1st March 2018	Rs. 3,60,000	Rs. 4,80,334.35	33.39%	19.67%
5 Years	1st March 2016	Rs. 6,00,000	Rs. 8,92,911.97	48.82%	15.91%
10 Years	1st March 2011	Rs. 12,00,000	Rs. 26,36,671.2	119.72%	15.04%

2. Nippon India ETF Junior BeES

This ETF is more than 10 Years old and has expense ratio of 0.15% and Zero Exit Load. Launched on 21st Feb 2003 and managed by Vishal Jain, The fund has Assets under Management (AUM) of Rs. 1,408 Cr. It closely corresponds to returns of Equity shares of Nifty Next 50 Index. One can give an ETF exposure of 15% to 25% based on risk capacity.

This Fund has 68% investment in large cap stocks, 26.1% in mid cap stocks and 4.9% in small cap stocks.

The ETF holds the following top 5 stocks as their top holdings.

Name of the Stock	Market Cap	% of Total Holding
Avenue Supermarts (Retail)	199,346	4.44%
Adani Green Energy (Power)	181,824	4.42%
Tata Consumer Products Ltd (FMCG, Retail)	58,187	3.77%
Info Edge (India) Ltd (IT Services)	63,965	3.72%
Dabur India Ltd (Personal Care)	90,324	3.27%

It also has many other quality companies like ICICI General Insurance, Godrej Consumer, Havells etc.

A monthly SIP in such ETF over last 10 years would have given you 14.32% Annualised Returns.

Investment Period	Rs. 10K SIP Starting	Investment Value	Current Value	Absolute Returns	Annualised Returns
1 Year	1st March 2020	Rs. 1,20,000	Rs. 1,57,841.91	31.53%	63.53%
3 Years	1st March 2018	Rs. 3,60,000	Rs. 4,63,684	28.8%	17.16%
5 Years	1st March 2016	Rs. 6,00,000	Rs. 8,27,613.9	37.94%	12.83%
10 Years	1st March 2011	Rs. 12,00,000	Rs. 25,36,579.2	111.38%	14.32%

3. Motilal Oswal Nasdaq 100 ETF (MOSt Shares NASDAQ 100)

This Fund mainly invest in shares of US Equity companies like Apple, Tesla, Microsoft, Amazon, Google, Netflix, PayPal, Nvidia and is a great way to diversify your ETF portfolio geographically. Indian Investors often struggle to invest in Giant Tech companies we use everyday and this ETF solves that puzzle by being a Rupee denominated Investment and also for Individual investor, It does not fall under the 250k$ foreign investment cap. It has low expense ratio of 0.5% per annum and there is no entry/exit Load.

Taxed as "investment other than equity oriented fund" (i.e. debt taxation with/without indexation benefits), Retail investors are taxed at a flat rate of 20% after indexation if sold after 3 years.

One can consider investing 15-25% of their ETF Portfolio based on their Risk apetite.

The ETF has some of the most renowned names globally within its top 10 stocks 

Name of the Company	Market Cap ($)	% of Total Holding
Apple	2,169,247,980,800	12.14%
Microsoft Corp	1,763,898,001,428	9.49%
Amazon.com	1,558,296,204,156	8.74%
Tesla Motors Inc	658,881,839,286	5.03%
Facebook	737,707,801,789	3.36%
Alphabet Inc - Class C	1,399,399,854,674	3.29%
Alphabet Inc	1,391,741,662,159	2.97%
NVIDIA Corporation	332,475,000,000	2.65%
Paypal Holdings Inc	315,268,802,834	2.26%
Netflix	242,626,881,881	1.93%

A monthly SIP in such ETF over last 10 years would have given you a massive >25% Annualised Returns.

Investment Period	Rs. 10K SIP Starting	Investment Value	Current Value	Absolute Returns	Annualised Returns
1 Year	1st March 2020	Rs. 1,20,000	Rs. 1,48,166	23.47%	46.33%
3 Years	1st March 2018	Rs. 3,60,000	Rs. 5,94,352	65.1%	35.45%
5 Years	1st March 2016	Rs. 6,00,000	Rs. 12,50,242	108.2%	29.88%
10 Years	1st March 2011	Rs. 12,00,000	Rs. 45,25,150	277.1%	25.07%

4. Nippon India ETF Nifty BeES

As the Name already suggests, this ETF mainly invest in Large cap companies in India and is a great way to beat Inflation and add stability to the ETF portfolio. While the annualised returns of this ETF are generally lower than JuniorBees, the risk is also comparatively lower due to some prominent Indian companies it holds.

Conversative Investors can allocate around 25% of their ETF portfolio in the above ETF while aggressive investors can allocate around 15%.

The ETF has some of the most renowned names within its top 10 stocks 

Name of the Company	Market Cap (Cr)	% of Total Holding
HDFC Bank Ltd	874,263.90	10.28%
Reliance Industries Ltd	1,418,791.53	10.12%
Infosys Ltd	572,358	7.8%
HDFC Ltd	478,309.93	7.26%
ICICI Bank	436,816.02	6.30%
Tata Consultancy Servies	1,147,723.15	5.55%
Kotak Mahindra Bank	376,250.53	4.26%
Hindustan Unilever	515,516.14	3.43%
ITC Ltd	258,342.19	3.02%
Axis Bank Ltd	376,250.53	2.79%

A monthly SIP in such ETF over last 10 years would have given you a modest but stable annualised returns of 13.68%.

Investment Period	Rs. 10K SIP Starting	Investment Value	Current Value	Absolute Returns	Annualised Returns
1 Year	1st March 2020	Rs. 1,20,000	Rs. 1,62,320	35.27%	71.61%
3 Years	1st March 2018	Rs. 3,60,000	Rs. 4,89,255.7	35.9%	20.99%
5 Years	1st March 2016	Rs. 6,00,000	Rs. 9,07,165	51.19%	16.56%
10 Years	1st March 2011	Rs. 12,00,000	Rs. 24,50,844	104.24%	13.68%

5. Nippon India ETF Gold BeES

While the Yellow Metal continues to lose its shine after dropping around Rs. 11,000 from August 2020's High, Its also a great investment opportunities as Investors turn fearful of yellow metal's slide. Gold BeEs provides returns that are closely in line with returns of Physical Gold. One can also consider Sovereign Gold Bond Scheme offered by the Government of India or even invest in Physical Gold and avoid this ETF completely.

One can consider an exposure of around 10% to 15% in Gold BeEs out of their overall ETF portfolio. Gold can help you with returns similar or better to Fixed Deposit but with overall weakness in Gold over last 6 months, this ETF can turn out to be a good contrarian bet.

Investment Period	Rs. 10K SIP Starting	Investment Value	Current Value	Absolute Returns	Annualised Returns
1 Year	1st March 2020	Rs. 1,20,000	Rs. 1,11,726	-6.89%	-12.58%
3 Years	1st March 2018	Rs. 3,60,000	Rs. 4,33,886	20.52%	12.51%
5 Years	1st March 2016	Rs. 6,00,000	Rs. 7,85,427	30.9%	10.72%
10 Years	1st March 2011	Rs. 12,00,000	Rs. 17,14,161	42.85%	6.93%

We hope that this gives you some understanding on how one can diversify their ETF portfolio and create an alternate investment strategy to Mutual Funds. There are obviously multiple ETFs tracking Sensex and Nifty which can be evaluated.

Do you invest in ETFs? Feel free to share your thoughts and comments on the same.