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The Best Canadian ETF Opportunities for Indians Looking to Grow Their Wealth

5 minute read

By Lesley Harrison

Indians who are looking to diversify their investments and gain exposure to international markets may wish to consider directing some of their investments towards Canada. The country’s relatively stable currency, good relationship with the United States and strong economy make it an interesting option for risk-averse investors who still want to have a chance of seeing their money grow in the medium to long term.

What Are ETFs?

An ETF is an exchange-traded fund.1 This investment vehicle helps people access the asset classes they’re interested in while managing their risk exposure. Some ETFs track a single thing, such as the price of gold. Others may track a market or sector. There are management fees with ETFs, and they don’t always track the underlying asset or assets perfectly. However, they simplify the process of investing. For example, there’s no need to figure out how to hold a physical commodity or choose which stocks to buy. This is what makes ETFs appealing to some investors.

Why Choose Canadian ETFs?

Canadian ETFs provide an accessible route for Indian investors who would like to invest in companies in Canada or acquire other assets that aren’t widely traded on the Indian markets. For example, some Canadian companies have Bitcoin ETFs, which offer access to the cryptocurrency without the risk of using unregulated exchange or the challenges of self-custody. ETFs that track major indices help investors diversify their portfolios without having to invest time into figuring out which equities to buy and sell.

What to Look for in an ETF

The ETF industry is huge, and it can be difficult to decide which funds are worth investing in. When choosing an ETF, consider the following:

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The value of the assets heldTrading volumesWhat asset or assets the ETF tracksHow long the fund has existedHow many other funds track the same assetHow accurately the ETF tracks the underlying assetThe fee structure

In general, higher volumes and larger holdings are better. Some deviation from the value of the underlying asset is to be expected, but the best ETFs offer relatively low fees and track the market very closely.

The Best Canadian ETFs for Indian Investors

Indian investors can choose from a huge variety of Canadian ETFs. Some of these funds track Canadian companies or indices. Others focus on commodities, foreign indices or other groups of assets. If you’re looking for exposure to the Canadian markets, focus on ETFs that track domestic activities. Look for trusted banks or major investing companies so you can feel confident the fund is well-managed and there won’t be any unwelcome surprises when it comes time to withdraw.

1. BMO Canadian MBS Index

The BMO Canadian MBS Index2 is an ETF that tracks mortgage-backed securities. This ETF is made up of securities insured by Canada Mortgage and Housing Corporation with at least $100 million outstanding, greater than 1 year to maturity and a minimum issue size of $200 million. The fund is denominated in Canadian dollars and is aimed at those who are looking for a relatively defensive source of income through exposure to the Canadian housing market.

2. CIBC Canadian Equity Index

The goal of the CIBC Canadian Equity Index3 is to track the Morningstar Canadian Domestic Index as closely as possible. It’s a relatively new ETF, having launched in March 2021. The management fees for this fund are just 0.04%. The fund performed quite well in its first year of trading, although compared to some more longstanding funds, it still has a relatively low amount of assets under management. This fund could be a good choice for those with a moderate risk tolerance.

3. Vanguard FTSE Canada All Cap Index

Vanguard is an established name in the financial world, and the Vanguard FTSE Canada All Cap Index4 provides a convenient way for investors to diversify into Canada’s economy. The fund covers Canadian equities of all sizes and currently includes 185 different assets. It offers a very similar rate of return to the underlying index, with an average growth rate of 12.3%,  making it a convenient option for investors who cannot purchase the shares in the index directly or who would prefer a fund manager to take care of the weightings for them.

4. Mackenzie Canadian Equity

The Mackenzie Canadian Equity ETF5 is an equity fund measured against the S&P/TSX Composite Total Return Index. With a management fee of 0.75%, this ETF is more expensive than some rival investing options. However, it provides relatively good returns and, in recent years, has outperformed the Morningstar Canadian Equity fund. The weighting of the fund’s holdings is focused on large caps, but as a Canadian-focused fund, it offers investors the chance to hold some companies that may be missing from traditional global or U.S.-centric indexes.

5. 3iQ CoinShares Bitcoin

This is a very high-risk investment option for those who would like to have some exposure to Bitcoin in their portfolios. The 3iQ CoinShares Bitcoin ETF6 tracks the value of Bitcoin, giving investors access to the cryptocurrency market without the risk of using unregulated exchanges or attempting to manage their own cryptocurrency holdings. Bitcoin is an incredibly volatile investment, and since the cryptocurrency market is unregulated, it’s difficult to truly assess its value. However, those who want exposure to the market can avoid some of the risks associated with it by holding an ETF.

How Are Foreign ETFs Taxed?

Profits from foreign ETFs are taxed in a similar way to other foreign investments. If your investment was a short-term one (held for less than 3 years), it will be taxed based on your usual income tax band. If the investment was a long-term one, it will be taxed under the capital gains rate of 20%. If you’re not sure what your tax band is or how best to handle your investments, seek advice from a professional tax advisor.

Diversify Your Portfolio to Reduce Risk

Canadian ETFs offer Indians exposure to the strength of the Canadian market. However, they’re not without risk. Aim to diversify your investments by holding funds with exposure to a variety of sectors and countries, including domestic assets as well as foreign ones. This gives the peace of mind that should there be a recession impacting any one industry or a crisis in a specific country, you won’t lose a huge percentage of the value of your investments.

Keep Liquid Savings as Well as Investments

Long-term investments such as ETFs and mutual funds are designed to be used to build wealth for long-term goals. They’re not short-term savings vehicles. For optimum financial security, it’s wise to have some money in a more liquid form, such as an instant access savings account. Aim to have at least a few months’ worth of expenses set aside in this form to cover you and your loved ones against any unexpected costs or short-term loss of income. Once you’re financially secure, consider putting surplus income into other investment vehicles that are less liquid but offer greater potential returns, such as ETFs.

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