What are Global ETFs?

Global Exchange-Traded Funds (ETFs) are investment instruments that offer exposure to international markets by tracking indices of global equities, bonds, or commodities. These funds are ideal for investors seeking diversification and access to markets beyond their home country. Global ETFs allow individuals to invest in international shares and stocks without directly purchasing foreign assets, making them a popular choice for wealth creation.

In India, several Global ETFs provide access to international markets. Some popular examples include:

• Motilal Oswal Nasdaq 100 ETF: Tracks the Nasdaq 100 index, offering exposure to leading US technology companies.
• ICICI Prudential US Bluechip Equity ETF: Focuses on large-cap US companies.
• Edelweiss MSCI Emerging Markets ETF: Provides exposure to emerging markets like China, Brazil, and India.
• Nippon India ETF Hang Seng BeES: Tracks the Hang Seng Index for exposure to Hong Kong markets.

Global ETFs are ideal for:

• Growth-oriented investors: Those looking to tap into the growth potential of international markets, especially in sectors like technology, healthcare, and finance.
• Portfolio diversifiers: Investors aiming to reduce risk by spreading investments across global markets. This helps mitigate the impact of domestic market volatility.

Investing in Global ETFs is straightforward. Here is a step-by-step guide:

1. Open a Demat and trading account: Register with a trusted broker offering access to Global ETFs.
2. Research and choose ETFs: Evaluate the ETF’s performance, underlying index, and expense ratio.
3. Place your order: Use your trading account to buy units of the chosen ETF.
4. Monitor your investments: Keep track of the ETF’s performance and rebalance your portfolio if necessary.

Global ETFs have gained popularity due to their numerous benefits:

1. Portfolio diversification
   Global ETFs allow investors to diversify their portfolios by gaining exposure to international markets. This reduces the impact of domestic market fluctuations and provides access to a broader range of sectors and industries.
2. Access to international markets
   Investing in Global ETFs enables individuals to participate in the growth of global economies and leading companies across various sectors like technology, energy, and healthcare.
3. Cost-effectiveness
   Compared to direct investment in foreign stocks, Global ETFs are a cost-efficient option. They come with lower expense ratios and eliminate the need for high brokerage fees associated with international transactions.
4. Liquidity and ease of trading
   Global ETFs are traded on stock exchanges, offering high liquidity and the convenience of buying or selling units during market hours.
5. Professional management
   Most Global ETFs are passively managed, tracking established indices. This ensures transparency and reduces the need for constant monitoring.
6. Hedging against currency depreciation
   By investing in foreign markets, Indian investors can hedge against the depreciation of the Indian Rupee (INR) against global currencies like the US Dollar (USD) or Euro.
7. Wide variety of options
   Investors can choose from a range of Global ETFs that focus on specific regions, sectors, or asset classes, enabling tailored investment strategies.

While Global ETFs offer significant advantages, they also come with certain risks:

1. Market volatility
   Global ETFs are subject to market fluctuations, which may impact returns. Factors like economic downturns or political instability in foreign markets can lead to volatility.
2. Currency risk
   Since Global ETFs involve foreign investments, fluctuations in currency exchange rates can affect returns. For instance, a depreciating foreign currency can reduce gains when converted to Indian Rupees.
3. Geopolitical risks
   Political tensions, trade disputes, or regulatory changes in foreign countries can negatively impact the performance of Global ETFs.
4. Limited control
   As Global ETFs are passively managed, investors have limited control over the selection of individual securities within the fund.
5. Tax implications
   Taxation on Global ETFs can be complex, often involving both domestic and international tax regulations.
6. Liquidity constraints
   While many Global ETFs are liquid, some may face lower trading volumes, leading to challenges in buying or selling units at desired prices.
7. Management fees
   Although Global ETFs are cost-effective, management fees and other associated costs can reduce overall returns.

Taxation is a critical factor to consider when investing in Global ETFs in India. Here is an overview:

1. Capital gains tax
   • Short-term capital gains (STCG): If Global ETFs are sold within 36 months, gains are taxed as per the investor’s income tax slab.
   • Long-term capital gains (LTCG): Gains from investments held for over 36 months are taxed at 20% with indexation benefits.
2. Dividend tax
   Dividends received from Global ETFs are subject to taxation as per the investor’s income tax slab.
3. Double taxation agreements (DTAs)
   India has DTAs with several countries to avoid double taxation. Investors may claim tax credits for taxes paid abroad.
4. Tax exemptions
   Certain exemptions may apply to specific categories of investors, such as Non-Resident Indians (NRIs).

Global ETFs are a powerful tool for investors seeking international market exposure and portfolio diversification. They offer access to global equities, cost-efficiency, and professional management, making them an attractive investment option. However, it is crucial to assess the associated risks and tax implications before investing.

To explore more investment options like Debentures, Shares, and Global ETFs, or to Open Demat Account, visit Bajaj Finserv’s knowledge centre today to learn how you can grow your wealth with shares and stocks.