[Practical Finance] How to Invest in the Soaring Indian Stock Market... ETF and Gonggong Fund

Direct Investment Not Possible Due to Lack of Brokerage Support
5 Index-Tracking ETFs, 3-Month Returns Up 13%
Small and Mid-Cap Focused Public Funds Attractive Investment Options

Recently, India has emerged as an alternative investment destination to China. Among major emerging markets, it has the highest index growth rate. The Nifty 50, a major index of the Indian stock market, has risen 27.42% over the past year (as of the 4th). This is even higher than the United States' S&P 500 (26.98%), which has been on a record rally. Since the beginning of this year, the Indian stock market has surpassed Hong Kong in market capitalization, ranking fourth in the world after the United States, China, and Japan. Even in 2022, when major global stock markets shrank by more than 10%, India’s stock market recorded a 2.17% increase.

However, individual investors cannot directly invest in the Indian stock market. This is because there are no securities firms equipped with systems to support local trading of Indian stocks. Instead, indirect investment is possible through exchange-traded funds (ETFs) or public funds. Major asset management companies are launching India-related ETFs in response to growing interest from individual investors. While there were only two India ETFs before 2022, the number has now increased to five.

There are a total of 5 India ETFs... Highest return rate 29%

The India ETF products available for trading domestically include Samsung Asset Management’s ‘KODEX India Nifty50’ and ‘KODEX India Nifty50 Leverage (Synthetic)’, Mirae Asset Global Investments’ ‘TIGER India Nifty 50’ and ‘TIGER India Nifty50 Leverage (Synthetic)’, and Kiwoom Asset Management’s ‘KOSEF India Nifty50 (Synthetic)’. Based on the net asset value (NAV) return over the past three months, KOSEF India Nifty50 (Synthetic) recorded 14.15%, TIGER India Nifty50 13.86%, and KODEX India Nifty50 13.30%. NAV is the price calculated by dividing the total assets of the ETF, which include the stocks held, cash, dividends, and interest income minus fees, by the total number of ETF shares issued. The leveraged ETFs ‘TIGER India Nifty50 Leverage (Synthetic)’ and ‘KODEX India Nifty50 Leverage (Synthetic)’ posted returns of 29.20% and 27.36%, respectively. Leveraged ETFs track twice the daily return of the index.

Kiwoom Asset Management is considered the 'originator' of India ETFs. In 2014, it launched Korea’s first India ETF, ‘KOSEF India Nifty50 (Synthetic)’. As of the 3rd, its net asset size is 203.5 billion KRW. Manager Jae-hye Ma explained, "Considering the characteristics of emerging market stocks, which incur high trading and currency exchange costs, we operate it as a synthetic type rather than a physical type." Synthetic ETFs do not directly hold the underlying assets; instead, the asset manager enters into an over-the-counter derivative contract called a return swap with a securities firm to track the underlying index’s returns. Since purchasing emerging market stocks like India requires double currency exchange?from Korean won to US dollars, and then from US dollars to the local currency?trading costs are significant. According to Kiwoom Asset Management, synthetic ETFs have the advantage of providing returns equivalent to the index’s fluctuations regardless of trading costs.

Latecomers Samsung Asset Management and Mirae Asset Global Investments emphasize that physical ETFs can reduce fees. Mirae Asset’s TIGER India Nifty50 and Samsung Asset Management’s KOSEF India Nifty50 actually hold stocks listed on the Indian stock market. Both have gained popularity, surpassing 200 billion KRW in net assets. TIGER India Nifty50’s net asset size is 255.8 billion KRW, and KOSEF India Nifty50 is 254.6 billion KRW. Physical ETFs have the advantage of not incurring costs from swap contracts with securities firms, unlike synthetic ETFs. However, since all five India ETFs fundamentally track the India Nifty50 index, the return differences among them are not significant.

Public funds also popular, ranking 3rd after the US and China... 2 trillion KRW 'lump sum money'

Individual investors are also pouring 'lump sum money' into India-related public funds. While ETFs have attracted funds and public funds’ popularity has waned in the overall market, India-related funds remain highly popular. According to FnGuide, as of the 29th of last month, the net asset size of India equity funds was 2.1691 trillion KRW. This is the third largest among overseas equity funds, following the US (22.6758 trillion KRW) and China (7.6392 trillion KRW). The total amount raised is 1.037 trillion KRW, and fund subscribers have earned about double the returns. The average return over three months was 17.74%.

Mirae Asset Global Investments recommends the ‘Mirae Asset India Small & Mid-Cap Focus Securities Investment Trust’, launched in September 2015. Its net asset size is about 450 billion KRW, with a recent three-month return of 13.94%. The fund mainly invests in small and mid-cap companies with high potential to grow into large Indian corporations. It targets mid-cap stocks, expecting them to benefit most from the growth of India’s domestic market. Mirae Asset Global Investments, which established its India branch in 2006, fully utilizes its local research and management capabilities.

Samsung Asset Management’s ‘Samsung India Small & Mid-Cap FOCUS Securities Investment Trust UH’ posted a three-month return of 18.48% and a one-year return of 57.22%, ranking among the top returns for India-related funds. Its net asset size is 72.9 billion KRW. As the fund name suggests, it invests in mid-cap growth stocks. Its main portfolio includes financial institutions, pharmaceuticals, jewelry, and airlines.