Best Equity ETFs in December 2024 – 5Y CAGR Basis – CPSE ETF, Bharat 22 ETF and More

The world of investing can sometimes feel overwhelming, with all the jargon and options available. But don’t worry! If you’re looking for a simple and effective way to invest in equities, Exchange-Traded Funds (ETFs) are an excellent choice. They combine the best of mutual funds and stocks, offering diversity and flexibility.

Before jumping into the list, let’s quickly understand equity ETFs. An ETF is a basket of securities you can buy and sell on the stock market, just like a stock. Equity ETFs specifically focus on investing in stocks, tracking indices like the Nifty 50, Sensex, or thematic and sectoral indices.

Best Equity ETFs in December 2024 – 5Y CAGR Basis

Note: The best equity ETFs list provided here is as of December 9, 2024. The ETFs are sorted based on the 5-year CAGR.

Overview of the Best Equity ETFs

1. CPSE ETF 

This ETF aims to mirror the Nifty CPSE Index, which includes major public sector enterprises in India. With a market cap of approximately ₹23,025.67 crore and a closing price of ₹92.67, it offers investors exposure to government-owned companies. The fund has a low expense ratio of 0.07% and a tracking error of 0.08%, indicating efficient management. Over the past five years, it has delivered a compound annual growth rate (CAGR) of 32.51%, reflecting strong performance.

Key Metrics:

• 1 Year Return (%): 50.22

• Alpha: 8.93

2. Bharat 22 ETF 

This ETF tracks the S&P BSE Bharat 22 Index, comprising 22 blue-chip public sector companies across various sectors. It has a market cap of ₹10,739.05 crore and a closing price of ₹115.35. The fund maintains a low expense ratio of 0.07% and a minimal tracking error of 0.03%, ensuring close alignment with its benchmark. Over the last five years, it has achieved a CAGR of 27.83%, making it an attractive option for investors seeking diversified exposure to public sector enterprises.

Key Metrics:

• 1 Year Return (%): 34.68

• Alpha: 5.41

3. Nippon India ETF Nifty Next 50 Junior BeES 

This ETF aims to replicate the Nifty Next 50 Index, representing the 50 companies ranked after the Nifty 50. With a market cap of ₹1,901.11 crore and a closing price of ₹778.50, it provides exposure to emerging large-cap companies. The fund has an expense ratio of 0.17% and a tracking error of 0.08%. Over the past five years, it has delivered a CAGR of 21.84%, appealing to investors looking for growth opportunities beyond the top 50 companies.

Key Metrics:

• 1 Year Return (%): 44.87

• Alpha: 3.77

4. UTI Nifty Next 50 Exchange Traded Fund 

This ETF also tracks the Nifty Next 50 Index, offering exposure to the next tier of large-cap companies. It has a market cap of ₹599.22 crore and a closing price of ₹77.66. The fund maintains an expense ratio of 0.15% and a tracking error of 0.07%. Over the last five years, it has achieved a CAGR of 22.20%, making it a viable option for investors seeking diversification within large-cap equities.

Key Metrics:

• 1 Year Return (%): 45.27

• Alpha: 9.69

5. Nippon India ETF Nifty Midcap 150 

This ETF aims to replicate the Nifty Midcap 150 Index, encompassing 150 mid-cap companies across various sectors. With a market cap of ₹373.17 crore and a closing price of ₹222.97, it offers exposure to the mid-cap segment. The fund has an expense ratio of 0.21% and a tracking error of 0.07%. Over the past five years, it has delivered a robust CAGR of 29.28%, appealing to investors seeking growth potential in mid-sized companies.

Key Metrics:

• 1 Year Return (%): 32.90

• Alpha: 10.65

How to Choose the Right Equity ETF?

With so many options, how do you pick the right ETF? Here are some tips to help you decide:

1. Expense Ratio: Always check the expense ratio; lower is better as it directly impacts your returns.
2. Performance: Look at the historical performance, but remember that past returns don’t guarantee future success.
3. Tracking Error: Choose ETFs with low tracking errors to ensure they closely follow their benchmark indices.
4. Diversification: Consider your existing portfolio. If you already have large-cap exposure, you might want to explore mid-cap or sectoral ETFs.
5. Investment Goals: Align the ETF with your financial goals. For example, go for CPSE or Bharat 22 ETF if you want stability. If you’re chasing growth, mid-cap ETFs might be better.

Pros of Equity ETFs

1. Diversification: Equity ETFs invest in a basket of stocks, which means your risk is spread across multiple companies and sectors. This diversification reduces the impact of any single stock’s poor performance.
2. Cost-Effectiveness: With low expense ratios, ETFs are much cheaper than actively managed mutual funds. This helps maximise your net returns over time.
3. Liquidity: Equity ETFs are traded on stock exchanges throughout the day, making them highly liquid. You can buy or sell them just like stocks, with real-time pricing.
4. Transparency: ETFs must disclose their holdings regularly so you know exactly what you’re investing in. This transparency makes them a trustworthy option for investors.
5. Flexibility: ETFs come in various types—large-cap, mid-cap, small-cap, sectoral, thematic, and even international equity ETFs—allowing investors to customise their portfolios easily.
6. Accessibility for Beginners: Equity ETFs are ideal for new investors as they don’t require extensive knowledge of individual stocks or market timing.

Cons of Equity ETFs

1. Tracking Error: An ETF may not perfectly replicate its benchmark index due to factors like fees and operational inefficiencies. This is known as a tracking error and can slightly affect returns.
2. Lack of Active Management: Most equity ETFs are passively managed, unlike mutual funds. This means they follow an index and don’t adapt to market changes, potentially missing out on opportunities.
3. Market Risk: Equity ETFs are tied to the stock market, so market volatility directly impacts their performance. During market downturns, ETFs can experience significant losses.
4. Limited Upside in Bull Markets: Since ETFs track an index, they don’t outperform the market. Active funds or individual stocks may deliver better returns during a strong bull run.
5. Costs in Low-Investment Periods: Although the expense ratio is low, frequent buying and selling of ETFs can lead to higher brokerage fees, which can reduce returns, especially for small investments.
6. Liquidity Concerns for Niche ETFs: While most ETFs are liquid, niche or thematic ETFs may have lower trading volumes, leading to wider bid-ask spreads and potential difficulties in buying or selling.
7. No Personalisation: ETFs are standardised products and don’t offer personalised stock picking based on individual goals, preferences, or risk tolerances.

The Final Word

Equity ETFs are a fantastic tool for investors looking to participate in the stock market without diving into individual stock-picking. In December 2024, the ETFs we discussed—CPSE ETF, Bharat 22 ETF, Nippon India Junior BeES, UTI Nifty Next 50, and Nippon Midcap 150—stand out for their performance, diversity, and cost-effectiveness.

Whether you’re a seasoned investor or just starting, there’s an ETF for everyone. But remember, no investment is risk-free. It’s always a good idea to do your research and consult with a financial advisor before making any decisions.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.