Motilal Oswal’s S&P500 Index Fund: Should you Invest?
International diversification is essential. Is this the right vehicle for it?
This post was first published on capitalmind.in
Motilal Oswal has launched an NFO (New Fund Offering) for its S&P500 Index Fund. The NFO is open from 15th to 23rd April 2020. We took a look to see if it make sense for Indian investors.
Short Answer: The launch of a fund tracking a major US Index is a step in the right direction. But it’s not necessarily the best way for Indian investors to invest in the US.
Let’s make sure we’re clear on the reasons.
The S&P500 has outperformed the NIFTY more times than not over the last decade. With INR depreciation, the difference is even more stark. Those points are well-documented in the NFO pitch document.
But that still doesn’t make it the best vehicle available to Indian investors.
First, should you invest in stocks of countries outside India?
Absolutely.
India is a small pond
Chart shows country percentage share of world economy.
At nominal GDP of USD 2.9 Trillion, India is at #5 (the chart shows India in the 6-10 bucket probably because we only recently went past UK.
The United States is 8x India’s economy. And that’s in absolute terms, not even per capita. India has been barely growing faster than the US on a much smaller base, so it’ll be a while before the Indian economy is comparable to the US in terms of size.
India’s largest company by market cap, Reliance Industries, at $101.99B, would be #74 in a list of US companies. It would be in the US equivalent of the Nifty Next 50.
The world’s best companies are not Indian. If a large part of the world’s business results show up outside India, it makes sense for investors to follow those results. If you’re a believer in index investing (i.e. investing in the largest companies by market cap), it is only logical to allocate to the largest companies in the world cost-efficiently.
Is the S&P500 the best vehicle to buy the best businesses?
If there were no other means of investing in the biggest economy in the world, with a 0.5% proposed expense ratio, this would be a good pick with some caveats.
But there is a better alternative.