If you have ever searched for ETFs, you would have heard one line again and again. ETFs are cheap. Low cost. Better than mutual funds.
That is mostly true.
But not always.
There are a few ETFs in the global market that are shockingly expensive. Some charge fees that are higher than what many active mutual funds charge. And most investors have no idea these even exist.
This article is written to clear that confusion.
We will start by explaining what “costliest ETF” really means. Then we will slowly build up to identifying the three most expensive ETFs in the market today based on expense ratio. Along the way, we will also explain why these ETFs are expensive and why understanding costs matters more than most people realise.
Think of this article as a friendly conversation, not a finance lecture.
What Does “Costliest ETF” Actually Mean?
Before we name any ETF, we need to get one thing right.
When someone says an ETF is costly, what exactly are they talking about?
Expense Ratio Is The Headline Cost
The most common way to judge the cost of an ETF is its expense ratio.
In simple words, the expense ratio is the annual fee that the ETF charges you for managing your money. It is expressed as a percentage of your investment.
If an ETF has an expense ratio of 0.20 percent, it means that every year, around ₹200 is charged on an investment of ₹1,00,000.
Most popular index ETFs charge very low expense ratios. Some are even below 0.10 percent.
But a few ETFs charge 5 percent, 10 percent, or even more. These are the ones that raise eyebrows.
You can read more about how expense ratios work on Investopedia
https://www.investopedia.com/terms/e/expenseratio.asp
The Full “Total Cost Of Ownership” Framework
Here is where most articles stop. And this is where investors make mistakes.
The expense ratio is important, but it is not the only cost you pay when you invest in an ETF.
To really understand how expensive an ETF is, you need to think in terms of total cost of ownership.
Let us break that down.
Annual Fees (Expense Ratio)
This is the fixed cost charged every year by the ETF. It is deducted daily and reflected in the ETF’s price over time.
Higher the expense ratio, greater the drag on your returns.
Trading Costs (Bid Ask Spread and Brokerage)
Unlike mutual funds, ETFs are bought and sold on the stock exchange.
This means you face a bid ask spread. The bid price is what buyers are willing to pay. The ask price is what sellers want.
If the gap between these two is large, you lose money the moment you buy or sell.
Low liquidity ETFs usually have wider spreads.
Brokerage charges also apply, though they are usually small.
Premium Or Discount To NAV
An ETF has a Net Asset Value, which is the value of its underlying holdings.
Sometimes, due to low liquidity or high demand, the ETF trades at a price higher or lower than its NAV.
If you buy at a premium, you are paying more than what the underlying assets are worth. That extra amount can vanish later.
This risk is higher in niche and complex ETFs.
The US SEC explains this clearly here
https://www.sec.gov/investor/pubs/etfs.htm
Tracking Difference And Tracking Error
Tracking difference is the difference between the ETF’s returns and the returns of the index or strategy it follows.
Even if two ETFs track the same theme, one can deliver lower returns due to higher costs, inefficient execution, or internal expenses.
Tracking error measures how volatile this difference is.
These factors quietly eat into returns over time.
Tax Drag
Some ETFs distribute income frequently. Some invest in instruments that are taxed differently.
Depending on the structure and jurisdiction, taxes can reduce your effective returns.
This is often ignored by first time investors.
A Quick Reality Check: Most ETFs Are Cheap, But These Are Not
At this point, you might be wondering if all ETFs are secretly expensive.
They are not.
What “Normal” Looks Like
Most plain vanilla ETFs are genuinely low cost.
Broad market index ETFs, large cap ETFs, and simple bond ETFs usually charge very low expense ratios.
This is because they follow a simple rule based index and do not trade actively.
Their job is boring, and that is a good thing for investors.
This is why ETFs became popular in the first place.
Why Some ETFs Get Expensive Fast
So why do some ETFs charge such high fees?
There are a few common reasons.
Complex Strategies
Some ETFs do much more than just track an index.
They use long short strategies, derivatives, leverage, or active security selection. Managing these strategies costs money.
Small AUM And Low Liquidity
If an ETF has a small asset base, fixed costs are spread across fewer investors.
This pushes up the expense ratio.
Low trading volume also increases trading costs for investors.
Active Trading Inside The Fund
Some ETFs buy and sell securities frequently.
More trades mean higher internal costs, which ultimately come from investors’ pockets.
Packaging Hard To Access Exposures
Some ETFs give access to areas like private credit, business development companies, or alternative income strategies.
These are not cheap to manage.
Investors pay for access and convenience.
The Three Costliest ETFs (Based On Expense Ratio
Now that we understand what “costliest” really means, let us come to the main question.
Which ETFs are the most expensive based purely on expense ratio?
These ETFs are extreme outliers. They are not meant for casual investors. But knowing about them helps you understand how wide the cost spectrum can be.
#1 Militia Long Short Equity ETF (Ticker: ORR)
This ETF often tops the list when people search for the most expensive ETF in the market.
Expense Ratio And What It Signals
The Militia Long Short Equity ETF charges an expense ratio of around 14 percent.
Yes, you read that right.
This means roughly ₹14,000 per year on a ₹1,00,000 investment, before considering any other costs.
This alone tells you that this is not a typical ETF.
You can verify ETF expense ratios on platforms like Morningstar
https://www.morningstar.com/etfs
What The Fund Is Trying To Do
This ETF follows a long short equity strategy.
It buys stocks that the manager believes will go up and shorts stocks that are expected to fall.
The goal is to generate returns regardless of market direction.
This kind of strategy requires constant monitoring, frequent trading, and active decision making.
All of this increases costs.
Who This ETF Is And Is Not For
This ETF is meant for sophisticated investors who understand alternative strategies and risk.
It is not suitable for beginners, long term savers, or parents investing for education goals.
For most retail investors, the complexity and cost outweigh the potential benefits.
#2 FT Confluence BDC And Specialty Finance Income ETF (Ticker: FBDC)
The second ETF on the list is focused on income.
And income is a powerful word that attracts many investors.
Expense Ratio And What It Signals
This ETF charges an expense ratio of around 13.69 percent.
That is extremely high by any standard.
It signals that the ETF operates in a costly and complex segment of the market.
Why Income Focused Investors Get Attracted
The ETF invests in business development companies and specialty finance firms.
These companies often pay high yields.
For investors looking for regular income, this can sound very appealing.
The problem is that high yield often comes with high risk and high cost.
The Key Risks Readers Must Understand
BDC focused ETFs are exposed to credit risk.
They are also sensitive to economic cycles and interest rate changes.
On top of that, the high expense ratio creates a heavy drag on total returns.
Many investors focus on the income payout and ignore how much they are paying for it.
#3 Putnam BDC Income ETF (Ticker: PBDC)
The third ETF on our list is similar in theme but comes from a well known asset manager.
Expense Ratio And What It Signals
The Putnam BDC Income ETF charges an expense ratio of around 13.49 percent.
While slightly lower than the other two, it is still extremely high.
What It Owns And Why That Matters
This ETF invests primarily in business development companies.
These companies lend to small and mid sized businesses and earn interest income.
Managing exposure to such companies involves higher research, monitoring, and operational costs.
These costs are passed on to investors.
What To Check Before Investing
Before investing in such ETFs, investors should look beyond the headline yield.
Check the ETF’s liquidity, bid ask spread, and historical total returns.
Also ask a simple question.
Is there a cheaper way to achieve the same goal?
The Hidden Costs Most People Ignore (And Why They Matter More Than Fees Sometimes)
By now, you already know that some ETFs charge very high expense ratios. But here is something important.
Sometimes, the hidden costs hurt more than the expense ratio itself.
Most investors never notice these costs because they do not show up clearly on a factsheet.
Bid Ask Spread: The Silent Cost Every Time You Buy And Sell
When you buy an ETF, you do not buy it at one clean price.
There are two prices on the screen.
The bid price is what buyers are willing to pay.
The ask price is what sellers are asking for.
The difference between these two is called the bid ask spread.
If an ETF is liquid and actively traded, this spread is small.
If an ETF is niche or illiquid, the spread can be wide.
This means you lose money the moment you enter and exit.
For example, if you invest ₹1,00,000 in an ETF with a 2 percent spread, you could lose ₹2,000 just due to the spread, even before fees.
This risk is higher in complex and high cost ETFs.
You can learn more about ETF liquidity and spreads from Vanguard
https://investor.vanguard.com/investor-resources-education/etfs/etf-trading-basics
Premium Or Discount To NAV
Every ETF has a Net Asset Value, also called NAV.
This is the value of the underlying securities held by the ETF.
Ideally, the ETF should trade close to its NAV. But this does not always happen.
When You Unknowingly Overpay
If an ETF is in high demand or has low liquidity, it can trade at a premium.
This means you are paying more than the value of what the ETF owns.
That extra amount is not guaranteed to stay.
When the demand cools off, the price can fall even if the underlying assets remain stable.
Why This Risk Increases In Niche ETFs
ETFs that invest in specialised strategies or illiquid assets face this issue more often.
The three costliest ETFs we discussed earlier fall into this category.
For retail investors, this is a serious risk that often goes unnoticed.
Tracking Difference: What You Expected Vs What You Got
Many investors assume that if an ETF follows a strategy or index, the returns should be similar.
In reality, that is not always the case.
Tracking difference shows how much the ETF underperforms or outperforms its stated benchmark.
Higher costs, inefficient execution, and internal trading expenses all contribute to this gap.
Over time, even a small tracking difference can compound into a big return gap.
Morningstar explains tracking difference in simple terms here
https://www.morningstar.com/articles/347327/how-to-measure-etf-tracking-error
What A 14 Percent Expense Ratio Does To Your Money
Numbers make things real.
So let us look at what a very high expense ratio actually does to your investment.
Cost Impact Over Time
Assume you invest ₹1,00,000 in an ETF.
We will ignore market returns for a moment and focus only on cost impact.
Example 1: One Year Holding Period
At a 14 percent expense ratio, around ₹14,000 is charged in one year.
Your investment value reduces to roughly ₹86,000, before any market movement.
Example 2: Three Year Holding Period
If this continues every year, the compounding effect becomes brutal.
Over three years, a significant portion of your capital gets eaten away by fees.
This makes it very difficult for the ETF to deliver meaningful long term returns.
Example 3: Five Year Holding Period
For long term goals like education or wealth creation, this kind of cost structure is destructive.
Even if the strategy performs well occasionally, the odds are stacked against the investor.
This is why high cost ETFs demand extremely high skill and consistent performance to justify their existence.
Why Would Anyone Buy These ETFs Then?
This is a fair question.
If these ETFs are so expensive, why do they even have investors?
The answer lies in psychology and positioning.
The Access Problem
Some strategies are hard to access directly.
Long short strategies, private credit exposure, and specialty finance instruments are not easily available to retail investors.
ETFs package these strategies into a tradable format.
Investors are willing to pay for access and convenience.
The Promise Of Smoother Returns
Some high cost ETFs claim they can reduce volatility or protect during market falls.
This sounds comforting, especially to conservative investors.
But smoother returns are not guaranteed.
And the cost of trying can be very high.
The Income Illusion
Income focused ETFs attract investors who want regular cash flow.
Monthly or quarterly payouts feel reassuring.
But many investors do not realise that income is only one part of total return.
If your ETF pays income but destroys capital through high fees, you are not really better off.
Costliest Does Not Always Mean Worst (But It Usually Means Higher Bar)
It is important to be fair.
A high cost ETF is not automatically bad.
But it has to clear a much higher bar.
When Higher Cost Might Be Justifiable
Truly Unique Access With Consistent Outcomes
If an ETF provides access to a strategy that cannot be replicated cheaply and delivers strong risk adjusted returns, a higher cost might be acceptable.
This is rare, but possible.
Transparency And Liquidity Still Matter
Even expensive ETFs should be transparent about holdings and risks.
Liquidity should be reasonable, so investors are not trapped.
Red Flags That Usually Mean Avoid
High Fee With Low AUM And Low Volume
This combination is dangerous.
It increases trading costs and exit risk.
Marketing Focuses On Yield, Not Total Return
If all the attention is on income and none on long term returns, be careful.
No Clear Role In A Normal Portfolio
If you cannot explain why the ETF belongs in your portfolio in one simple sentence, it probably does not.
A Simple Checklist To Avoid ETF Fee Traps
Before you invest in any ETF, especially a fancy one, pause and check a few basics.
Ten Second Checks Before You Buy
Look at the expense ratio.
Check the assets under management.
See the average daily trading volume.
Observe the bid ask spread.
Understand what the ETF actually owns.
If any of these raise doubts, stop and reassess.
Questions To Ask Yourself
What Job Should This ETF Do In My Portfolio?
Is it for growth, income, or stability?
If you cannot answer this clearly, the ETF does not belong in your portfolio.
Can A Cheaper ETF Do The Same Job?
In most cases, the answer is yes.
Low cost index ETFs solve many goals effectively.
Am I Buying Returns Or Excitement?
Many complex ETFs look exciting.
Long term wealth creation is usually boring.
Boring often wins.
India Angle: What Indian Investors Should Learn From This
Indian ETFs are generally much cheaper than these global outliers.
That is a good thing.
But Indian investors still need to be careful.
Are Indian ETFs Also Expensive?
Most Indian ETFs have low expense ratios.
However, some suffer from low liquidity and tracking issues.
These hidden costs can still hurt returns.
What Indian Investors Should Prioritise
Liquidity First
If an ETF does not trade actively, spreads can quietly eat into returns.
Do Not Ignore Tracking Difference
Two ETFs tracking the same index can give different results.
Always compare past performance relative to the index.
SEBI has useful investor education material on ETFs
https://investor.sebi.gov.in
Frequently Asked Questions
Which ETF Has The Highest Expense Ratio?
Some niche global ETFs charge expense ratios above 13 percent, which is extremely high by industry standards.
Is A High Expense Ratio Always Bad?
Not always, but it demands exceptional performance and clarity of purpose.
For most investors, low cost ETFs are better.
What Is A Good Expense Ratio For An ETF?
For plain index ETFs, anything below 0.30 percent is generally considered reasonable.
Why Do Some ETFs Charge Such High Fees?
They use complex strategies, invest in illiquid assets, or require active management.
What Costs Matter Besides Expense Ratio?
Bid ask spread, tracking difference, premium to NAV, and tax impact all matter.
Are Active ETFs Worth It?
Some can be, but most investors should approach them with caution.
Conclusion: The One Rule Most Investors Should Follow
If you do not fully understand why an ETF is expensive, you should not invest in it.
For education goals, long term savings, and family wealth, low cost and simplicity usually win.
ETFs are powerful tools.
But like any tool, they work best when used correctly.
Frequently Asked Questions (FAQs)
Are ETFs really cheaper than mutual funds in India?
Most ETFs in India are cheaper than actively managed mutual funds when you compare expense ratios. However, ETFs can have hidden costs like low liquidity and bid ask spreads. These costs can reduce returns if you are not careful.
What is considered a high expense ratio for an ETF?
For most investors, an ETF with an expense ratio above 0.50 percent should raise questions. Plain index ETFs usually charge below 0.30 percent. Anything above 1 percent needs strong justification.
Why do some global ETFs charge 10 to 14 percent fees
These ETFs use complex strategies like long short investing or private credit exposure. They involve higher trading, research, and operational costs. Investors are paying for access and strategy, not simplicity.
Are such high cost ETFs available in India?
No. Indian ETFs are generally much cheaper. Extremely high cost ETFs are mostly found in the US and global markets. But Indian investors can still lose money due to poor liquidity and tracking difference.
Should beginners invest in complex or high cost ETFs?
No. Beginners should stick to simple, low cost, liquid ETFs that track broad indices. Complex ETFs are difficult to understand and can behave very differently from expectations.
How do I check if an ETF is liquid or not?
You can check the average daily trading volume and bid ask spread on your trading app or exchange website. A very low volume or wide spread is a warning sign.
What is bid ask spread and why should Indian investors care?
Bid ask spread is the difference between buying and selling price of an ETF. In low volume ETFs, this spread can be large. You may lose money even if the market does not move.
Is a high dividend paying ETF always a good option?
Not necessarily. High dividends can look attractive, but total return matters more. An ETF can pay income but still destroy wealth through high fees and poor performance.
