Skip to content 
Introduction
Indian investors have long maintained a preference for domestic equities and mutual funds. But with greater access to international markets and a declining rupee, increasing numbers are shifting towards US-listed Exchange-Traded Funds (ETFs) these days. These funds not only provide exposure to some of the globe’s most high-performing companies but also enable a powerful method of portfolio diversification by sectors, geographies, and currencies.
With such platforms as Vested, it’s really easy to invest in US ETFs. In this blog, we outline what ETFs are, how they benefit Indian investors, how to invest in them from India, and the new tax implications in Budget 2024.
If you’re just beginning to research how to invest in US ETFs from India, or are searching for US ETF investment platforms for Indians, this information will assist you in making sound choices.
What Are ETFs?
An Exchange-Traded Fund (ETF) is an investment fund that seeks to replicate a particular index, sector, commodity, or theme. ETFs list and trade on the stock exchange like ordinary stocks. It is therefore possible for investors to buy and sell them during the trading session at market price.
ETFs are different from mutual funds since they are passive, low-cost, and transparent. The majority of ETFs seek to replicate the performance of the underlying index. For instance:
- SPY follows the S&P 500
- QQQ follows the Nasdaq-100
- VTI follows the broad US stock market
As of May 2025, there were approximately 3,900+ U.S.-listed ETFs, which were holding about $11 trillion in assets (close to 70% of global ETF AUM). (ETFGI reports and YCharts)
This increasing demand is one of the major reasons US stock ETFs India searches have increased exponentially.
How ETFs Contribute to Portfolio Diversification
Diversification is allocating your investments among various assets to decrease overall risk. US ETFs enable Indian investors to:
- Invest in multiple companies within one fund (e.g., 500 in SPY)
- Invest in industries that are not well-represented in India, such as biotech, AI, semiconductors, and clean energy
- Increase global currency exposure to protect against depreciation of INR (RBI)
- Offset domestic market volatility by exposing themselves to US economic cycles
Such US ETF portfolio diversification enables investors to access broader growth possibilities outside the Indian market. US technology ETFs, particularly those that replicate the Nasdaq-100 such as QQQ, gave returns of +47.58% during India’s COVID-19 rebound in 2020, driven by the high growth of Apple, Amazon, and Tesla (Nasdaq 100 performance). Conversely, 43.14% of Indian Equity Mid-/Small-Cap mutual funds lagged their benchmark, the S&P BSE 400 MidSmallCap Index, as per the SPIVA India Scorecard (SPIVA Source PDF).
Indian ETFs Tracking US Indices vs Direct US ETFs
Indian investors now have more options to get exposure to the US market—either locally through an ETF such as Motilal Oswal Nasdaq 100 or directly through US-listed ETFs such as QQQ or SPY. But whereas the two alternatives might appear similar on the surface, the way they act in real life is very different.
Tracking Accuracy
Indian ETFs gain access to US indices via feeder structures, which may lead to a return mismatch. For example, the Motilal Oswal Nasdaq 100 ETF has witnessed tracking errors of 0.5% to 2.2% annually (ET Money). In contrast, US-listed ETFs such as QQQ and SPY track their benchmarks closely with tracking errors usually below 0.1%, based on superior fund structures and synchronisation with US trading hours.
Premium/Discount to NAV
Indian ETFs tend to deviate from their NAV and trade at a premium or discount, particularly at times of volatility. In March 2020, their deviation was as much as 2–3% in some funds (Economic Times). US ETFs generally trade very near their NAV because they have huge liquidity and aggressive market makers.
Liquidity and Spread
ETFs such as SPY and QQQ have $10–30 billion of volume on an everyday basis, which makes them relatively very easy to trade. Indian ETFs tend to have significantly less liquidity—sometimes less than ₹50 crore per day—resulting in wider bid-ask spreads and less effective pricing.
Cost
US ETFs are notoriously inexpensive. Vanguard’s VTI, for instance, has an expense ratio of only 0.03% (Vanguard). Indian equivalents can cost more than 0.5% because operational costs are higher and the complexity of feeder structures adds to the cost (Motilal Oswal).
Access and Flexibility
With the likes of Vested, Indian investors have access to hundreds of US-listed ETFs—from broad market indices to sector-specific or thematic funds such as clean energy, cybersecurity, or AI. Indian-listed US ETFs, by contrast, are few in number and flexibility.
In brief, while Indian ETFs are convenient, direct US ETFs are more accurate, economical, and offer greater choice options—making them the more intelligent option for investors wishing to diversify worldwide with ease.
Advantages and Disadvantages of Investing in ETFs
The advantages of US ETFs for Indian investors are:
- Low cost: The majority of ETFs incur an expense ratio of 0.03–0.15%, significantly cheaper than Indian mutual funds (source).
- Transparency: ETF holdings are made public each day.
- Liquidity: High volume and low bid-ask spread for most US ETFs.
- Tax simplicity: Taxes incurred only upon exit, as opposed to mutual funds with internal turnover.
But risks exist as well:
- Market risk: ETFs follow the market; they are not exempt from declines.
- Currency risk: INR appreciation can lower returns in USD-based ETFs.
- Thematic ETF risk: Narrow themes can underperform or become riskier.
Example: The ARK Innovation ETF (ARKK) that had a blistering ride in 2020, fell more than 60% in 2022 because of high exposure to speculative technology stocks.
Practical Considerations When Selecting ETFs
Selecting the appropriate ETF is one aspect of the US ETF investment process for Indian investors. Here’s what to keep in mind:
1. Expense Ratio
Lower expense ratios (such as 0.03%–0.10%) serve to enhance long-term returns. For instance, SPY levies 0.09%, while most Indian mutual funds levy 1% or higher.
2. Liquidity and Volume of Trading
A very actively traded ETF such as QQQ or SPY experiences billions of volume on a daily basis, so tight spreads and smooth execution can be guaranteed.
3. Tracking Error
This is a measure of how well the ETF replicates the performance of its base index. Reduced tracking error reflects better index replication.
4. Underlying Index or Theme
Align the ETF’s theme with your conviction to invest—broad-based (such as S&P 500) or targeted (such as semiconductors).
5. Size of Fund and AUM (Assets Under Management)
Larger funds tend to be more stable and efficient.
6. Tax Structure
Be aware of how the income and capital gains of the ETF are taxed according to Indian regulations.
7. Currency Exposure
USD-based ETFs provide protection against INR depreciation but can lose out if INR appreciates.
8. Issuer Reputation
Deal with leading issuers such as Vanguard, iShares, Invesco, or SPDR.
Use Vested, one of the top US ETF investment platforms for Indians, to compare ETFs on filters for cost, sector, risk, and returns.
ETF Investment Strategies for Indian Investors
Designing a smart US ETF investment strategies can assist Indian investors in matching their international investments with long-term goals, risk tolerance, and market circumstances. Following are three of the most commonly used frameworks:
1. Core-Satellite Approach
This plan balances stability with focused growth. It’s best for investors who prefer long-term compounding with the ability to ride emerging trends.
- Core (70–80%): Invest in broadly diversified ETFs such as SPY (S&P 500) or VTI (total US market). These provide your portfolio foundation, with steady returns, low fees, and low volatility.
- Satellite (20–30%): Include high-growth or thematic ETFs like QQQ (tech-intensive), SMH (semiconductors), or ICLN (clean energy). These capture upside from rapidly changing industries.
Example: Consider 75% VTI and 25% of SMH and ICLN to marry stability with exposure to growth.
2. Dollar-Cost Averaging (DCA)
Invest a fixed amount in regular periods, irrespective of market movements. DCA averages out the entry points and minimizes emotional investment decisions.
- Begin with a monthly SIP-like arrangement using platforms such as Vested.
- DCA works particularly well in turbulent markets so that you end up buying more units when prices are lower.
3. Goal-Based Investing
Plan your ETF portfolio according to definite life objectives:
- Retirement Planning:
-
- Invest in ETFs that index broad market indices and have dividend reinvestment (e.g., VTI, SCHD).
- Invest in lower-volatility or value ETFs to hedge against losses closer to retirement.
- Children’s Education Abroad:
- Create a USD-denominated portfolio with ETFs such as SPY, QQQ, and ICLN.
- This aligns your investments with future USD costs.
- Wealth Preservation:
-
- Invest in defensive sectors (e.g., XLU for utility) or dividend-growth ETFs.
- Employ inflation-protected ETFs such as TIP (iShares TIPS Bond ETF) to preserve purchasing power.
These methods assist investors in maximizing their US ETF diversification experience.
Tip: Utilize Vested’s handpicked portfolios – for example, ‘All Weather’ or ‘Multi-asset class’ to match your individual objectives.
(Kindly note that these are for knowledge purposes and not recommendations.)
How to Build a Diversified Portfolio Using US ETFs from India
If you’re wondering how to invest in US ETFs from India, here’s a sample portfolio with ₹1,00,000 (~$1,200):
| ETF | Allocation | Purpose |
| SPY | 40% | Core US equity exposure |
| QQQ | 20% | Tech-heavy growth |
| VTI | 20% | Broad diversification |
| SMH | 10% | Thematic semiconductor exposure |
| ICLN | 10% | ESG and clean energy investing |
This setup offers exposure to large-cap, tech, clean energy, and broader US markets. It’s one of the best US ETFs for Indian investors aiming for balance.
Tip: You can see the most popular ETFs on Vested app ( US stocks > Explore > Popular- ETFs > select the timeline (1D/1W/1M/1Y/5Y) )
Tax Implications on US ETFs for Indian Investors (Budget 2024)
The latest US ETF tax implications India rules include:
Capital Gains Tax
| Type | Holding Period | Tax Rate | Indexation | Exemption |
| Short-Term | < 24 months | Slab Rate | No | No |
| Long-Term | ≥ 24 months | 12.5% | No | No |
Dividend Tax
- Dividends on US ETFs are subject to withholding tax. This is usually 25%
- In India, the dividends are taxed at the investor’s income slab rate.
- Avail foreign tax credit by filing Form 67 along with your ITR
Reporting Requirements
- Report foreign assets under Schedule FA in ITR.
- Report foreign income under Schedule FSI.
- Utilize ITR-2 or ITR-3, as per your overall income profile.
The revised US ETF investment regulations India framework have to be considered while planning.
Conclusion
With world-class funds at their fingertips, low costs, and global diversification, investing in US ETFs from India is no longer reserved for the old pros. It’s a risk-adjusted way to enhance returns, and it’s easier than ever thanks to platforms like Vested.
Whether you’re looking to hedge your rupee exposure, tap into sectors like AI or green energy, or just build wealth with less hassle, US ETFs for Indian investors are a powerful tool.
Get started on your global investing journey today—with Vested.
Disclaimer – This article draws from sources such as the Financial Times, Bloomberg,and other reputed media houses. Please note, this blog post is intended for general educational purposes only and does not serve as an offer, recommendation, or solicitation to buy or sell any securities. It may contain forward-looking statements, and actual outcomes can vary due to numerous factors. Past performance of any security does not guarantee future results.This blog is for informational purposes only. Neither the information contained herein, nor any opinion expressed, should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives.The information and opinions contained in the report were considered by VF Securities, Inc.to be valid when published. Any person placing reliance on the blog does so entirely at his or her own risk, and does not accept any liability as a result.Securities markets may be subject to rapid and unexpected price movements, and past performance is not necessarily an indication of future performance. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding investment in securities markets.Past performance is not a guarantee of future results.
