Choosing between Nasdaq 100 Vs S&P 500 for international mutual funds

Indian investors looking to invest in international funds focused on US markets are often faced with a dilemma. And the dilemma is about picking between Nasdaq 100 index Vs S&P 500 index when looking for international funds.

So what is the difference between S&P500 and Nasdaq 100 and how do these two compare?

Let’s discuss this a bit so that we can pick between Nasdaq 100 funds and S&P500 funds. Just like choosing between Sensex vs Nifty.

S&P 500 index – The S&P500 is made up of the largest 500 largest US stocks across different sectors. These can be listed either on NYSE or Nasdaq exchanges. It is often regarded as a broad indicator of the US equity market and it covers about 80% of the market capitalization of the US stock exchanges. Compared to our Indian indices like Nifty50, the US-based S&P 500 is a much more diversified and sophisticated index. Read more about S&P 500 here.

Nasdaq 100 index – The NASDAQ 100 is made largest 100 largest US and non-US stocks. Primarily, Nasdaq100 is a technology sector heavy index. Some of the world’s most innovative and famous companies like Apple, Google, Amazon, Facebook, etc. are part of it. Read more about Nasdaq 100 here.

By the way, there is another popular US-based index that is often compared with the two we are discussing. And that is Dow Jones Industrial Average (DJIA) 30. Dow 30 is an index of the top-30 blue-chip US companies. Kind of Sensex in India has 30 companies or investing in large cap funds. Read more about DJIA 30 here.

Coming back, here are the major difference between Nasdaq 100 and S&P 500:

  • While S&P500 offers sectoral diversification within the USA, Nasdaq100 is more about investing in a concentrated manner in tech-oriented stocks that have the highest weightage in the index.
  • Given the concentrated nature of Nasdaq100, it has historically given better returns than S&P500. At least the probability of that happening is quite high if you look at historical data.
  • But given the concentrated nature of Nasdaq100, the higher returns come with higher volatility. It’s like you are investing in a sectoral fund and hence, it can be a volatile journey with higher peaks and higher drawdowns

When you invest in Nasdaq100 or S&P500, it no doubt offers you the much-needed geographical diversification in your mutual fund portfolio. But also, it’s a play on Rupee INR depreciation.

The returns that investors would make depend on rupee depreciation as well. Over the years, our INR Rupee has steadily depreciated against the US dollar. This can be beneficial for investors investing in international equities as the INR value of such investments would rise.

But why are we so focused on the US markets for international investments?

There are many other promising countries and hence, why not also have investments in other international funds that invest in emerging markets, Japan, China, or Europe?

One primary reason is that the US is a developed country and India isn’t. So the US markets have a very low correlation with the Indian markets as well as the Emerging markets (EM). Indian markets tend to move in line with general emerging markets. So US investments provide a slightly better option when it comes to adding un-correlated assets to the portfolio. Then there is that INR-USD thing due to which, investing in US Dollar-denominated assets helps when there is gradual ongoing Rupee depreciation. Then there is ofcourse the fact that in India, we don’t have companies like Google (Alphabet), Facebook, Amazon, etc. So if we want to invest in these attractive and innovative companies, then we need to look at markets that have them. And that is the US markets. Ofcourse, you can still invest in international funds from non-US geographies as well. You just need to ensure that it has a good portfolio fit for you. Do check this updated list of international mutual funds in India.

List of Nasdaq 100 Index Funds and ETFs in India

  • Motilal Oswal Nasdaq 100 Fund of Fund (FoF)
  • Kotak Nasdaq 100 Fund of Fund (FoF)
  • Mirae Asset NYSE FANG+ ETF
  • Mirae Asset NYSE FANG+ ETF FoF
  • Motilal Oswal NASDAQ 100 ETF
  • Motilal Oswal NASDAQ Q 50 ETF
  • ICICI Pru Nasdaq 100 Index Fund
  • Aditya Birla Sun Life Nasdaq 100 FoF

List of S&P500 Index Funds and ETFs in India

  • Motilal Oswal S&P 500 Index Fund
  • Mirae Asset S&P 500 Top 50 ETF
  • Mirae Asset S&P 500 Top 50 ETF FoF

Related – List of index funds in India

Now you may as whether to go with the ETF or FOF (Fund of Funds) for Nasdaq or S&P500? If you are a small investor, then opt for index funds and fund of fund (FOF) over ETFs. ETFs are cheaper but have liquidity issues due to which they are always unavailable near their actual NAVs. You can even consider doing a SIP in international funds or FOFs for regular investing.

But how much should you invest in these international funds?

I had written about why Indians need to invest in international funds some time back. My view is that if you are a small investor with a small portfolio, you just stick to Indian mutual funds for time being. Once your portfolio size increases (let’s say above Rs 10-25 lakh), you can consider having an international fund in the mix.

I know that purists might not agree with me but I feel that small investors should not worry too much about geographical diversification from the start. It can come in later on too for them.

For bigger investors, investing 10% to 20% in international funds or ETFs can be considered. And within the international funds for such investors, I think having 70:30 allocation to developed country funds (US, etc.) and emerging markets (China, Russia, Brazil, etc.) can be considered.

But if you have doubts, then keep it simple. Just pick a US-focused international mutual fund to begin your geographical diversification.

So that was about NASDAQ 100 Vs S&P 500 index and mutual funds.

Investing in S&P 500 or Nasdaq 100 can help you diversify your portfolio geographically and beyond the Indian market. As far as picking between S&P500 and Nasdaq 100 is concerned, then consider this. If you want potentially higher returns but with higher volatility, then go for Nasdaq100. But if you don’t want too much volatility but are ok with reasonable returns but also want higher sectoral diversification, then go for the S&P500 index.

Most Indian investors who want to invest passively in US markets are confused about which index to choose from S&P 500 Vs Nasdaq 100. I hope you found this discussion useful and will help you see the difference between Nasdaq100 and S&P500 and will help you pick between the two US-based international funds.

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1 comment

  1. Good informative article.
    May I suggest altering the font color of the text. It is some shade of grey and contrast with white background is not great. Readability would increase with higher contrast, IMHO

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