/US-based international funds: Should you bet on S&P or Nasdaq?

US-based international funds: Should you bet on S&P or Nasdaq?

International funds are gaining acceptance among Indian mutual fund investors. Many mutual fund houses and distributors have also started pushing these schemes that invest in the overseas markets enthusiastically lately. Mostly, the advice is to stick to US-based schemes. However, investors often get stuck with two major indices in the US market: S&P 500 and Nasdaq 100. Most passive investors are confused about which index to choose.

According to AMFI data, the AUM of overseas schemes (FOF) has risen to Rs 6,496.98 crore in September 2020 from Rs 3,041.54 crore in September 2009. The number of folios rose to 4,12,311 in September 2020 from 3,10,607 in September 2009.

Motilal Oswal Mutual Fund is the only fund house that offers schemes that invest in these two indices: Motilal Oswal Nasdaq 100 ETF or Motilal Oswal Nasdaq 100 Fund of Fund and Motilal Oswal S&P 500 Index Fund.

Nasdaq 100 Index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market. It is a tech-heavy index that includes Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, Adobe Inc, Cognizant Tech Sol, Citrix Systems Inc, and Netflix, Inc.

S&P 500 Index includes 500 publicly listed leading US companies across sectors and covers approximately 80% of available market capitalization. It is regarded as a broad indicator of the country’s equity market. The top 5 sectors in the index are information technology (27.4%), health care (14.1%), consumer discretionary (11.6%), communications services (11.2%), and financials (9.9%).

Within these two indices, technology is still the biggest sector, but in Nasdaq, it accounts for 54 % concentration. S&P includes industries across sectors of the market making it a more diversified one.

The Nasdaq ETF and Nasdaq 100 FoF is more like a thematic/ sectoral fund that will invest in tech companies. Motilal Oswal Nasdaq 100 FOF has given 6.12 % returns over a year, shows ACE MF database. Many investment experts believe that technology companies have an edge over others in the Covid era. So, many believe that they may offer an opportunity to make money in the coming days.

Motilal Oswal S&P 500 index fund is an index fund which invests in the companies that are part of the S&P 500 Index (US) in the same weightage as in the index. Investing in S&P 500 index fund will offer an opportunity to invest in more diverse companies that will also include globally top technology leaders. So, the downside risk of any specific sector will be less. This fund was launched in April this year.

Finally, investing in any of the indices offers geographical diversification. Also, the difference in rupee-dollar valuation helps to earn returns. However, there are challenges of investing abroad. You may find it difficult to keep track of changing political and macroeconomic conditions in the US.

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