There is an alternative route that exists alongside feeder funds: international ETFs.

To understand this route, it helps to first understand what an ETF is.

An Exchange Traded Fund (ETF) is a fund that holds a portfolio of securities but trades on the stock exchange like a regular stock. Instead of investing through a mutual fund platform, investors buy and sell ETF units directly on the exchange using their trading account.

In the case of international ETFs listed in India, the underlying portfolio represents companies from global markets. Most of these ETFs are designed to track a well-known global index.

For example, the Motilal Oswal Nasdaq 100 ETF tracks the Nasdaq-100 index. By buying a unit of this ETF, an investor indirectly gains exposure to companies such as Apple, Microsoft, Nvidia, Amazon, and Alphabet.

Similarly, the Nippon India Hang Seng ETF tracks the Hang Seng Index and provides exposure to large companies listed in Hong Kong.

Instead of selecting individual companies, the ETF simply replicates the index it follows. If the index rises, the ETF value rises. If the index falls, the ETF falls as well.

The main operational difference between ETFs and mutual funds is how transactions happen.

Mutual funds are bought through mutual fund platforms, and all transactions are processed at the end-of-day NAV. ETFs, on the other hand, trade throughout the trading day on the stock exchange. Investors can buy or sell units at the market price available at that moment, just as they would when buying or selling shares of companies such as Reliance or TCS.

In practice, this means ETFs behave much like stocks in terms of execution, even though the underlying investment is a diversified basket of companies.

Another feature that attracts investors to ETFs is cost. Since most ETFs simply track an index rather than actively managing a portfolio, their expense ratios are generally lower than those of many international feeder funds.

However, there is one important nuance investors need to understand when investing in international ETFs listed in India today.