Why NRIs Shouldn't Invest In US Listed India ETFs like INDA/INDY

US NRIs have two ways of investing in India - either through a US Listed ETF like INDA or INDY or directly in India based ETFs or index funds. In this article we analyse both the ways and share the findings with you.

January 26, 2024
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In 2023:

  • $180 million ($0.18 billion) was invested in INDY (a US Listed ETF tracking India’s Nifty 50 index)
  • $3.33 billion in INDA (a US Listed ETF tracking the MSCI India Index)

That’s $4 billion flowing in Indian equities primarily through overseas investors like NRIs.

But are these investors investing the right way? 

A simple question: Is INDY ETF earning returns close to that of its underlying benchmark (Nifty 50)? You’ll be shocked looking at the numbers. 

Before we understand the performance of INDY and Nifty, let's understand what INDY and Nifty are. 

INDY is an exchange-traded fund (ETF) incorporated in the USA that mimics the composition of the Nifty 50 index to generate returns similar to that of the index. 

Nifty 50 is an Indian stock market index that comprises the 50 largest Indian companies listed on the National Stock Exchange. This benchmark is used to measure the overall performance of the Indian stock market. 


INDY ETFvs. NIFTY 50 Index

Over the 5-year horizon, Nifty has given more than 100% return, while INDY barely managed to generate 40% return. 

There is a large difference. Ideally, it shouldn't exist. Moreover, this difference in return can mean that even if Indian markets grow quickly, your investment in this ETF can lag significantly as it has in the past. 

But why is this that case? Let’s find out. 

Tracking Error

The deviation between an ETF's returns and its underlying index is called tracking error. The tracking error is influenced by factors such as foreign exchange fluctuations, trading hour mismatches, and transaction costs. These elements create disparities in expected and actual returns, impacting the overall performance of the ETF.

  • Foreign exchange fluctuations

The exchange rate between the US Dollar (USD) and the Indian Rupee (INR) can create differences. When the fund converts the INR to USD, the returns can change because of the currency changes. This means that the ETF’s returns may not match the index’s performance due to currency impact.

  • Trading hour mismatches
    Global markets operate in their own time zones. This can potentially lead to delays in buying or selling shares. 
  • Transaction costs

Market illiquidity, or buying and selling at different times during trading sessions (not necessarily at the closing prices reflected in the underlying index), can impact the overall cost. And, potential trade failures can occur, impacting the ETF's ability to acquire shares at the necessary prices to track the index.

INDY has a high expense ratio of 0.89% as compared to its Indian ETFs and index funds (0.05-0.3%). This largely impacts the fund’s returns, which are computed after accounting for the fund’s expense ratio. A higher expense ratio would lower the overall returns, affecting the tracking error. 

Liquidity and Trading Volume

Liquidity is crucial and impacts market efficiency and investor transactions. Higher trading volume indicates active participation, but low liquidity widens bid-ask spreads, increasing trading costs. This directly affects ETF performance, reducing your potential returns.

The average trading volume of INDY is around 76K, while that of SBI Nifty 50 ETF is around 156K. Lower trading volumes and liquidity can potentially lower the returns from INDY. 

Index Composition and Rebalancing

The dynamic nature of the NIFTY index, undergoing periodic adjustments, significantly affects the performance of US-listed ETFs like INDY that aim to replicate it. 

Rebalancing challenges arise as the index evolves, requiring ETFs to adjust holdings promptly. Failure to do so can lead to misalignments, resulting in varying returns between the ETF and the index. 

These discrepancies impact overall performance, potentially causing underperformance over time. 

In India, Nifty is rebalanced twice every year (March and September). Thus, ETFs and index funds tracking the benchmark must promptly adjust and rebalance to match the new allocations.  

The below table lists the top 5 holdings and their weights of Nifty and INDY. Since INDY is a passively managed ETF, the rebalancing does not take place frequently. Thus, the difference in allocations will lead to varying returns. 



HDFC Bank Ltd.


HDFC Bank Ltd.


Reliance Industries Ltd.


Reliance Industries Ltd.


ICICI Bank Ltd.


ICICI Bank Ltd.


Infosys Ltd.


Infosys Ltd.


Larsen & Toubro Ltd.


ITC Ltd.


If Not US Listed ETFs like INDA/INDY, Then What?

How else can you invest?

Being an NRI, you can directly invest in India through mutual funds. Similarly, you can invest in ETFs or index funds that track Nifty.

Similar to US ETFs tracking Nifty, there are Indian ETFs that track Nifty. These ETFs are listed on the stock exchange. You can buy and sell them directly on the exchange.

On the other hand, Nifty Index Funds are passively managed mutual funds that mimic the Nifty allocation as closely as possible. 

Here, we’ve compared all three for you, and let’s find out which option is the best to invest.



Return (5Y)

Expense Ratio(%)

Tracking Error(%)





SBI Nifty 50 ETF




UTI NIFTY 50 Index Fund




From the above table, it is clear that returns from INDY are quite low, and the expense ratio and tracking error are quite high when compared to Indian ETF and index funds. 

Thus, it is rather beneficial to invest in Indian ETFs or index funds directly rather than investing in US ETFs that track Indian indices. 

Between the two - Indian ETF or Index Fund, which one should you pick? 

Read on to find out…

Problems of Investing in ETFs in India for NRIs

Also, from the above data it is quite evident that SBI Nifty 50 ETF is the best performer in terms of higher return and lowest expense ratio and tracking error. Does that mean ETFs are the best way to invest in Nifty? Well, maybe not. ETFs come with their own set of limitations. 

Demat Account

To buy and sell ETFs in the stock market, you must have a demat account.

The demat account opening process is time-consuming, and delays may occur if there are issues with the submitted documents or application form.

Trading Hours

Since ETFs trade on the stock exchange, it can be quite challenging for you to participate during market open hours in India. You may potentially lose the right opportunity to enter or exit a trade. 


It is important to consider the liquidity factor of ETFs. In India, ETFs are yet to gain popularity. And currently, they are not highly liquid. 


Despite a low expense ratio, ETFs investing in India has other costs. These include transaction charges, Securities Transaction Tax (STT) and the usual costs of trading in stocks, including differences in the ask-bid spread, etc.

Index Funds - Your Best Low Cost Bet to Invest in India

Index funds offer the convenience of investing in the fund anytime and do not attract any additional charges. Also, these funds allow you to invest systematically in them. Thus, you don’t have to worry about timing the market. You do not require a demat account for investing in mutual funds. You can directly invest in them through digital platforms like iNRI. 

Investing in the top Nifty index fund will help you generate returns similar to that of the benchmark. Identify a fund with a low expense ratio and tracking error. This ensures the returns will be as close to that of the benchmark. 

iNRI’s Low-Cost Indexing Theme

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✅ We’ve done all the analysis for you - simply pick the best fund from our top three recommendations.

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