Financial Awareness Level
What are Emerging Market ETFs? Meaning, Benefits & Relevance for Indian Investors
Introduction
As global investing becomes more accessible, many Indian investors are looking beyond domestic markets to diversify their portfolios. One of the easiest ways to gain global exposure is through Emerging Market ETFs. These funds allow you to invest in fast-growing economies like Brazil, China, India, and South Africa through a single investment vehicle. In this blog, we explain what Emerging Market ETFs are, how they work, and whether they make sense for Indian investors.
What are Emerging Market ETFs?
An Emerging Market ETF (Exchange Traded Fund) is a passively managed investment fund that tracks the performance of an index made up of companies from emerging economies. These ETFs are traded on global stock exchanges like any other stock.
Examples of emerging markets include:
- India
- China
- Brazil
- South Korea
- South Africa
- Indonesia
- Mexico
Popular Indices Tracked by Emerging Market ETFs:
- MSCI Emerging Markets Index
- FTSE Emerging Markets Index
Key Features of Emerging Market ETFs
- Diversification: One ETF can give you exposure to multiple countries and sectors
- Low Cost: Passive management leads to lower expense ratios than active global funds
- Ease of Access: Listed on international exchanges and available via Indian brokers offering global investing
- Real-Time Trading: Can be bought and sold anytime during market hours
Benefits of Investing in Emerging Market ETFs
- Global Diversification: Reduces reliance on Indian equities alone
- Growth Potential: Emerging markets often grow faster than developed economies
- Currency Exposure: Offers indirect exposure to foreign currencies and global trends
- Risk Management: Helps balance domestic market volatility
Risks to Consider
- Political and Economic Instability: Emerging markets can be volatile
- Currency Risk: Fluctuations in foreign exchange rates may affect returns
- Global Events: Geopolitical tensions, commodity prices, or interest rate changes can impact performance
Are There Emerging Market ETFs in India?
While Indian mutual fund schemes and ETFs do not directly offer emerging market-specific ETFs, some Fund of Funds (FoFs) in India invest in global ETFs or international equity schemes that include emerging markets. Investors can also use few broker based platforms to access international ETFs.
Conclusion
Emerging Market ETFs offer a smart way to diversify globally and tap into the high-growth potential of developing economies. While they carry some risk, they can add depth to your investment portfolio when used strategically. Indian investors with a medium- to long-term horizon and access to global investing platforms should consider including these ETFs as part of their international allocation.
Additional links:
What is a Mutual Fund? - Beginner's Guide to Investing
FAQ Section
What is an emerging market ETF?
It is an ETF that invests in a basket of stocks from emerging market countries like China, Brazil, and India.
How can Indian investors buy emerging market ETFs?
Through international brokerage platforms or Indian FoFs that invest in such ETFs.
Are emerging market ETFs risky?
Yes, they carry risks due to currency fluctuations, political instability, and global economic factors. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
What is the MSCI Emerging Markets Index?
The MSCI Emerging Markets Index captures large and mid cap representation across Emerging Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
Can I invest in emerging market ETFs using SIP?
Not directly, but some global investing platforms or Indian FoFs may offer SIP-like features.
What are the costs involved in buying global ETFs?
Brokerage fees, currency conversion charges, and taxation may apply. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Is it better to invest in a global ETF or country-specific ETF?
Global emerging market ETFs offer broader diversification, while country-specific ETFs provide focused exposure.
What should be the ideal allocation to emerging market ETFs?
It depends on your risk appetite and portfolio goals, but 5–15% international exposure is common in diversified portfolios.
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Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. If they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
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