The Best Canadian ETFs for Investing in Indian Stocks

Emerging markets typically include countries like China, India, Brazil, South Africa, and Mexico. But because most emerging market indices are market cap weighted, they tend to be dominated by China and India. As of mid-2025, these two countries make up 44% of the MSCI Emerging Markets Index.

Personally, I find India the more interesting of the two. Canada is home to a large non-resident Indian (NRI) population. This diaspora is especially concentrated in cities like Surrey, British Columbia, and Brampton, Ontario, where you’ll find vibrant communities with cultural traditions spanning Punjabi, Gujarati, Tamil, and Telugu heritage, among others.

In U.S. dollar terms, India’s stock market has delivered solid returns. The benchmark Nifty 50 index is up 118.76% cumulative on a price return basis (excluding dividends) over the past five years. That’s far ahead of most broad emerging market peers.

If you’re a Canadian investor looking to overweight Indian equities, you have three main ETF options. I’ll walk through each of them and point out what I think are the pros and cons.

iShares India Index ETF (XID)

XID is the ETF many beginners default to, largely because of its early launch date back in 2010 and its relatively high $142 million in assets under management. It tracks the Nifty 50 Index, a market cap-weighted benchmark of 50 of the largest and most liquid companies on India’s National Stock Exchange.

The largest sector exposure in XID is financials at around 37%, giving it a profile somewhat similar to the Canadian S&P/TSX 60. After that, consumer discretionary and technology round out the top sectors. You’ll see some familiar names in the holdings list, including HDFC Bank and ICICI Bank, two of India’s largest private lenders, Reliance Industries, a diversified energy and retail conglomerate, and Infosys, one of the country’s major IT service providers.

But while XID captures India’s large-cap segment well, there are a few drawbacks that keep it from getting my vote. First is the expense ratio, which comes in at an unusually high 0.99%. That’s more in line with legacy mutual funds than modern ETFs.

The second issue is tax inefficiency. XID holds the U.S.-listed iShares India 50 ETF (INDY), which itself already has dividend withholding at the source from the underlying Indian stocks. Then, because INDY is a U.S.-listed ETF, another 15% foreign withholding tax applies when held inside XID. That layering leads to a drag on after-fee, after-tax returns.

As a result, XID has significantly underperformed its benchmark. Over the last 10 years, XID returned 7.19% annualized, while the Nifty 50 index delivered 9.88%. That’s called tracking error!

BMO MSCI India Selection Equity Index ETF (ZID)

Specialty ETFs that apply ESG screens are usually more expensive, but in a twist, ZID is actually cheaper than XID. It tracks an index of Indian companies that MSCI has assigned higher ESG ratings relative to sector peers and limits exposure to just 50% of the market capitalization within each sector.

That comes with some exclusions. Companies with significant revenues from tobacco, alcohol, gambling, conventional and civilian firearms, controversial weapons, or major involvement in nuclear power are screened out. In practice, this means the fund ends up with a portfolio that’s less concentrated in financials compared to XID. Beyond that, the holdings don’t differ in any radical way.

The key advantage is performance. ZID has returned 9.99% annualized over the last 10 years, trailing its benchmark by just over 1 percentage point, but still ahead of XID by a wide margin.

That’s partly because ZID holds the Indian stocks directly, which avoids the extra 15% U.S. foreign withholding tax layer, and charges a lower (though still relatively high) 0.67% MER.

Franklin FTSE India Index ETF (FID)

My personal favourite for Indian equity exposure is FID launched on August 14 by Franklin Templeton, a global asset manager with a long track record in international equities.

FID tracks the FTSE India RIC Capped Index and uses an ETF-of-ETFs structure by wrapping the U.S.-listed Franklin FTSE India ETF (FLIN). That does introduce the 15% U.S. foreign withholding tax on dividends, but to help offset that, FID charges a low 0.19% management fee.

The full MER hasn’t been confirmed yet since the fund is so new, but it’s expected to be around 0.25%, which would make it roughly a quarter the cost of XID.

The holdings themselves are fairly standard but more diversified than XID. Since it’s not limited to just the top 50 companies, the index covers over 200 names, including small and mid-cap firms. This broader exposure helps reduce concentration in financials and gives you more balanced exposure.

What would improve FID in the future is if it moved to direct holdings rather than using a U.S. ETF. I understand why Franklin Templeton chose this approach for a faster launch, but down the road, switching to direct exposure would make it even more tax-efficient for Canadian investors.