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Opinions5 Mins Read

Go Global. Invest in S&P 500

Indian investors have a strong home bias. In these challenging times and weakening rupee, it becomes even more important for investors to diversify their risks by gaining exposure to global equities.


Now I know what you are thinking. Why should you invest your hard-earned money abroad when everything, everywhere is going to the cleaners, anyway? Fair question. Let me try and answer that.

Economies work in cycles. So, you have periods of growth and then an inevitable decline. It is the way things work. By diversifying your portfolio you can then:

  • Protect yourself against home bias and make the best use of investment opportunities across the globe
  • Invest in leading global brands like Amazon, Tesla, or Facebook and be a part of their growth story
  • Check portfolio losses during times of market decline and hedge your bets in other geographies

While investment in global assets is necessary, the ways and means of doing the same for an investor in India have been fairly limited. There are only a handful of mutual funds in India that enable access to global equities. After the launch of the Bharat Bond ETF last December, one of the leading fund houses in the country with a market cap of ~INR 8,000 Cr and 10L+ trusted customer base has now launched an Index Fund which intends to mimic the S&P 500 Index and for the first time enables resident Indians access to the top 500 companies in the US.

Presenting: Motilal Oswal AMC S&P 500 Index Fund. We will learn a little more about this fund in a bit, but let’s first start with understanding the index first.

What is the S&P 500 and why should you invest in it?

S&P stands for Standard and Poor, the names of the two founding financial companies, which introduced the index way back in March 1957.

S&P 500 is one of the oldest indices in the world with a track record of over 63 years. It invests in the top 500 companies in the U.S. and represents ~80% of the US market.

Investors often use the S&P 500 as a benchmark of the overall market, to which most other investments are compared.

Now, as to why you should invest in it. Here are some reasons to add this index to your portfolio:

  • Investing in an index like the S&P gives you access to the best of the global markets in a single go. If you wanted to invest in the S&P 500, you could, theoretically, also buy stocks in every single company listed on the index. That means 500 individual transactions. Five. Hundred. Individual. Transactions. And a lot of money in fees. Investing in the S&P directly via a mutual fund is easier.
  • Lower correlation between assets means you have greater opportunity for diversification. A combination of assets that are not directly correlated protects your portfolio against volatility and improves risk-adjusted returns.
  • The index acts a good dollar hedge, and provides global exposure in terms of sales. Moreover, the performance of the S&P 500 has always promised higher dividend yields as compared to other indices.
  • You should invest in this index, because you wouldn’t want to be swimming in a small pond now, would you? As the graph below shows, India’s contribution to the world’s economy is less than 4%. With the bulk of investing options outside our home, not diversifying one’s portfolio can severely affect the health of your assets.
India's contribution to world economy | Source: Visual Capitalist
India’s contribution to world economy | Source: Visual Capitalist

How can you invest in the S&P 500 Index? Motilal Oswal vs. Kristal.AI

Since the S&P is an index, you cannot invest in it directly. However, you can gain exposure to the world’s top companies in two ways depending on the size of your investment:

    • Ticket Size < 2L

If you’re a beginner and willing to own a piece of globally renowned companies like Apple, Google and Amazon, you should invest in Motilal Oswal S&P 500 Index Fund. The minimum investment amount of this fund is only INR 500.

With an expense ratio of 0.5% p.a. for the direct plan, this fund is the easiest way for you to gain exposure to S&P 500 and start your investment journey.

This fund has several investment options including a SIP which allows you to invest a sum as little as INR 500 weekly, or monthly, or INR 1500 quarterly depending on your investment goals.

    • Ticket Size > 2L

If you’re an affluent investor and willing to access a range of investment options including the S&P 500, you should use the LRS route and invest using a virtual broking account created by Kristal.

For larger ticket sizes, investing in a diversified portfolio of assets becomes increasingly important than to limit yourself to a single offering. We also found that for larger ticket sizes, investing via our platform (SPY Kristal) turns out to be cheaper in the long run due to fixed LRS costs and our flat fee structure.

Kristal.AI vs. Motilal Oswal Fund

Even if your ticket size is less than 2lakhs, you can still access the SPY Kristal on our platform, and get the best of our algo-enabled advisory for your portfolio on the side! Here are some more benefits to investing on Kristal which you might find helpful:

Investing in SPY via Kristal.AI

Are you ready to go global then?

The pandemic that is raging across the markets right now is a Black Swan event. It has hit all of us equally hard. But when the recovery starts, the steady investor will find that their patience and investing skills have paid off in the long run.

The bottom line is that you were thinking of diversifying your portfolio and expanding out into the markets, now is as good a time as any!

For any concerns, do write to us at advisory-india@kristal.ai for help!

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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