MUTUAL-INDEX FUNDS

–INDIAN EQUITY INDEX FUNDS

Taxation: STCG (Short Term Capital Gain) tax of 20% on capital gain if sold within one year, LTCG (Long Term Capital Gain) 12.5% tax on capital gain over Rs 1.25 lac if sold after one year.

Invest through secure site like http://icicidirect.com having wide office network/reputed group and very good customer service. Our family has three accounts including a NRI account in this site which is user friendly and easy to browse.

ACTIVE v/s INDEX- PASSIVE FUNDS

Though there are around ten categories and 616 number of Indian equity funds, but it is best & most safe to avoid Active Funds (Risky-Random/Unregulated Funds) and invest only in Index Funds (Standard/System/Regulated/Merit Funds) also known as Passive Funds. Index Funds invest in the companies constituting a market index e.g., SENSEX founded in 1986 & NIFTY 50 launched in 1996, managed by BSE (Bombay Stock Exchange) & NSE (National Stock Exchange), respectively. Passive Funds simply track an underlying index and seek to generate returns as per that. They comprise Index Funds and Exchange Traded Funds (ETFs). As the markets grow or shrink, their composition of stocks adjusts accordingly. This feature ensures that investors are always aligned with the prevailing market trends.

The NIFTY 50 (conjunction of words National Stock Exchange & Fifty) Index is a benchmark/standard Indian stock market index that comprises of 50 of the largest Indian companies listed on the NSE. It is one of the two main stock indexes used in India, the other being the BSE SENSEX.  Sensex (Sensitive Index) includes top 30 companies. Nifty 50 Index is more popular as it has more companies so more diversified. Essentially, Nifty 50 Index serves as a barometer for the overall movement of the Indian stock market. Following is the list of companies constituting the Nifty 50 Index:

Nifty 50 Stock List for 2022 | NIFTY Index Today | Tradingfuel.com

NIFTY 500 Index launched in 2019 is India ’s first broad-based (Large/Mid/Small Cap) stock market index. It contains top 500 (Ranked 1-500) listed companies on the NSE (equivalent of S&P 500 Index of USA given under International Index Funds). Nifty 100 Index covers top 100 companies in the Nifty 500 Index. BSE 500 Index is also India’s other broad  based stock market Index. Following is the Max etc. returns chart of Indian Stock Market Indices:

BSE-500 31,880.95 (▲0.64%) S&P BSE – 500 | Google Finance

Important global stock market indices are Dow Jones (Dow Jones Industrial Average, DJIA- consists of 30 companies, USA), S&P 500 (USA), NASDAQ 100 (Worldwide), Euro Stoxx 50 (Europe), Nikkei 225 (Japan), and MSCI World Index. Following is the Max Returns chart of above important World Stock Market Indices:

NDX 17,685.98 (▼0.90%) Nasdaq-100 | Google Finance

MSCI World Index- Morgan Stanley Capital International, is a benchmark that tracks the performance of equity markets across the developed world.

The main feature of an Index is that it is ever-changing/dynamic and not a static entity, the companies are included/excluded (auto-correction/updation mechanism) on the basis of size/market capitalization, value, profitability, geographic location etc. which an individual investor may miss to take timely action/such process is absent in active funds. Companies like Bombay Dyeing, DCM Shriram, Oswal Chemicals, HMT, Hindustan Motors etc. earlier included in Sensex are no longer present in the index now, having been replaced by better companies. There are only 12 companies which have remained in the Nifty 50 since its inception in 1996. Across 25 years, there have been 101 inclusions in Nifty 50, averaging 4 per year. So, an index is inherently/internally active.

Two major method used while constructing indices are based on the stock price and market capitalization. Price weighted indices such as DJIA assign greater weight to high priced stocks whereas market-cap weighted indices, including S&P 500, S&P BSE Sensex and Nifty 50, give higher weight to stocks with high market value. Other than price and market-cap, some indices called fundamental weighted can be based on revenue, earnings, dividends and other fundamental factors.

A market-cap weighted index by nature is influenced by stocks with high market-cap, which makes it highly concentrated. To eliminate this, an alternative way is to prepare an index which assigns equal weight to each of its constituents. For instance, the top five stocks account for nearly 40% of the total weight of the Nifty 50 and just around 12% of the Nifty 50 Equal Weight Index as of January 31, 2024. Also, the financial services sector has a 33% weight in the Nifty 50, which is reduced to nearly 19% in the Nifty 50 Equal Weight Index.

In an Index Fund, the fund manager has to passively/systematically invest only in the companies that have been included in the index by given percentage weightage for each stock.  While in actively managed (non-regulated/retail/random/hawker) funds the fund managers randomly select the companies based on their research which thus introduces fund manager’s bias/choice risk affecting the returns- may underperform/outperform an index. Hence, active funds also have higher expense (1.25-1.5/2%) than Index Funds (0.10-0.5%).

Even if active funds outperform sometime, the gains are eaten up by the higher fund expenses. But TV business channels/experts etc. vigorously promote active funds especially sectoral/thematic, hardly mentioning Index Funds.

The true-to-label characteristic is a big draw for index funds. A small-cap index fund, for instance, would invest 100% in small caps, while an active small-cap fund may also have large-caps, mid-caps, and cash holdings. Also, though ‘passive investing’ may suggest passive portfolios, the changes, depending on the factor-based strategies (alpha, momentum, value, equal weight & low volatility), could be very dynamic.

Index/Passive funds have arrived, will become a mainstay for investors, and grow severalfold in the days ahead.

John C Bogle (founder of Vanguard Group) was first to give the innovative idea of the Index Funds in 1975 and created the Vanguard 500 Index Fund as the first index mutual fund available to the general public. He contended that it is folly to attempt to pick actively managed mutual funds and expect their performance to beat a low-cost index fund over a long period of time, after accounting for the fees that actively managed funds charge.

He preached investment over speculation, long-term patience over short-term action, and reducing broker fees as much as possible. The ideal investment vehicle for Bogle was a low-cost index fund held over a lifetime with dividends reinvested and purchased with dollar cost averaging.

Active funds return varies widely from fund to fund in a Category but all the Index Funds in a category give returns as given by the benchmark Index. Here is an example: As on April 30, 2023, Large Cap active funds (40 nos.) have average 5-years return range from 6.8 to 12.6% (that’s a big difference), while Nifty 50 funds (18 nos.) show returns range variation of only 11.4 to 11.9% which is only due to tracking error of the index fund manager.

If an active fund underperforms and you have to change to other fund, then it also incurs LTCG tax/other expenses, so better invest in Index Funds to avoid the later pain which may repeat. You will be always stuck up in analysis paralysis of comparing return figures of active funds. However, your capital will always grow in an index fund in the long-term for sure, should never worry of losing money here as in active funds.

Also, active funds will have different portfolios/difficult to monitor for each fund while all index funds follow standard index portfolio which is easy to see. You can see index funds return in real time in index charts (Nasdaq 100, S&P 500, BSE 500, Nifty 50 & MSCI Inc charts), no such data available for active funds.

Following composite chart shows Max etc. returns of the Nasdaq 100, S&P500, BSE 500, Nifty 50 & Msci Inc indices:

NDX 15,877.71 (▲0.24%) Nasdaq-100 | Google Finance

A key conclusion from the S&P Indices V/S Active Funds (SPIVA) India reports is that the average mutual fund manager does not beat the index. As on November 30, 2022, out of 357 open end equity-oriented schemes in India with a five-year history, only 87 (or about 25%) outperformed their respective benchmarks in the last five years. Of course, the number of schemes that consistently outperformed the benchmark will be even lower (source: Page 28, Mutual Fund Insight magazine- India, January 2023). Also, with increasing fund size, it is more difficult for an active fund to beat the market. However, Index Funds are not meant to outperform the market, but mimic the performance of the index. Actively managed funds ensure sleepless nights, index funds give sound-sleep. Index is infallible and will last forever, no such guarantee for active funds. So, an Index Fund does what it says, and also does more of what it doesn’t say.

On the present and future of passives There is a strong pivot towards passive funds due to government mandates. Pension funds and government entities are among the most significant contributors to this passive flow, followed by institutions. Although retail and high net worth (HNI) investor participation is still relatively low, there is rapid growth and the gap between active and passive in the large-cap space has reduced. Furthermore, buoyed by several incentives such as market-linked returns, minimum tracking error, diversification and transparency in portfolio composition, investors are looking at passive products with a sense of vigor. Active Funds are like hawkers, Index Funds are institutions.

“Index is Forever- Invest in Index & Relax”– Ignore active funds/noise

(Active Funds are like retailers/risky-random-high cost, Index/Merit Funds are institutions/safe-systematic-low cost. Active funds are monitored by the fund manager while index funds are managed by the market itself)

Active mutual fund returns include dividends while it is not so in index funds. Hence, a comparison of the performance of a mutual fund should be benchmarked against a Total Return Index (TRI) which includes dividends. 

Some examples of index funds are:

India- HDFC S&P BSE 500 Index Fund, Smart Beta/Factor based index fund UTI Nifty 500 Value 50 Index Fund launched in May 2023, HDFC Nifty Midcap 150 Index Fund, ICICI Prudential Midcap 150 Index Fund, Tata Nifty Midcap 150 Momentum 50 Index Fund, HDFC Nifty Small Cap 250 Index Fund

International- ICICI Prudential NASDAQ 100 Index, Motilal S&P 500 Index Fund, HDFC Developed World Indexes FOF

ETF (Exchange Traded Fund) launched in India in 2001, is an Index Fund which can be traded on the exchange like shares of a company. ETFs combine the flexibility and convenience of trading individual stocks with the diversification offered by Index Funds. ETFs generally track a specific index and own financial assets such as stocks, bonds, currencies, debts, futures contracts, and/or commodities such as gold bars. Here SIP can’t be done, and you have to buy/sell the ETF yourself, the transaction is instant/real-time while a normal mutual/Index fund takes a few days.

Instead of stocks ETFs are best and safe/risk free. Individual stock price can become zero but not so in ETFs, infact ETFs price going down provides an opportunity to buy more at lower levels. So, you will never loose money in ETFs/Index Funds. You can buy them for long-term investing or trading. Here you can even time the market and buy whenever ETF prices are down by 1% or more, and if you wish may sell when overall profit increases by 3% or more (see video below). While selling keep one ETF in the portfolio so that always the price is visible. In Index Funds you cannot do trading, they are for long-term investing only.

If you have Rs 1 Lac, may invest it for a month (Rs 5000/- per day, the market opens for about 20 days in a month). Diversify investment in different ETFS.

Important factors to consider in selecting ETFs are i) liquidity/volume of the ETF (should be a minimum of 20,000 to enable easy buying/selling. There are no liquidity issues in a fund as when you place a sale order/redemption, the fund manager sells the units on your behalf and the amount is credited to your account. ii) good market cap/Asset size, iii) reputed AMC, good companies in the ETF’s portfolio iv) less expense ratio, and v) low brokerage, in http://icicidirect.com Lifetime brokerage is 0.07% on a one-time payment of about Rs 11,000/-.

May see the following ETFs:

i) Large Cap: ICICI Pru Nifty 50 ETF, ICICI PRUDENTIAL NIFTY 50 VALUE 20 ETF, ICICI PRUD NIFTY NEXT 50 ETF, KOTAK NIFTY ALPHA 50 ETF (KOTN50), DSP Nifty 50 Equal Weight ETF

ii) Mid Cap: NIPPON INDIA ETF NIFTY MIDCAP 150 ETF, DSP Nifty Midcap 150 Quality 50 ETF

iii) Small Cap: HDFC NIFTY Smallcap 250 ETF, Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF

iv) Flexi Cap: ICICI PRUD MF S&P BSE 500 ETF/MOTILAL OSWAL NIFTY 500 ETF (constitute Giant Cap – 53.00%, Large – 21.33%, Mid Cap – 21.67%, Small Cap – 3.98%, and Tiny Cap – 0.01%)

v) Multi Cap: Mirae Asset Nifty 500 Multicap 50:25:25 ETF

vi) Sectoral: ICICI PRU NIFTY BANK ETF, ICICI PRUDENTIAL NIFTY PSU BANK ETF, ICICI PRU NIFTY PRIVATE BANK ETF, MIRAE ASSET NIFTY FINANCIAL SERVICES ETF, ICICI PRUDENTIAL NIFTY IT ETF, ICICI PRUDENTIAL FMCG ETF, ICICI PRU NIFTY AUTO ETF, ICICI PRU NIFTY HEALTHCARE ETF, MOTILAL OSWAL NIFTY REALTY ETF

vii) Thematic: ICICI Pru Nifty 200 Quality 30 ETF, Mirae Asset Nifty MidSmall Cap 400 Momentum Quality 100 ETF, Nippon India ETF Dividend Opportunities 50

viii) Thematic-PSU: CPSE ETF (invests in shares of public sector companies owned by the Indian government), ICICI PRUD MF BHARAT 22 ETF (Giant Cap – 79.37%, Large Cap- 10.30%, and Mid Cap – 10.33%)

ix) International ETFs: Motilal Oswal MS NASDAQ 100 ETF, Mirae Asset S&P 500 Top 50 ETF

x) COMMODITIES: ICICI PRU GOLD ETF, ICICI PRU SILVER ETF

(List of Index Funds and ETFs is available in “Mutual Fund Insight” Magazine, India, Editor- Dhirendra Kumar)

Always buy/sell ETFs only through limit order and not market order.

-Following is the video in Hindi on investing/trading in ETFs:

https://www.quora.com/What-are-some-safe-and-profitable-passive-ETFs-to-invest-in/answer/DINESH-PORWAL-11

Unlike active funds, Index Funds and ETF’s have no exit load. So, Institutional and as well as retail investors also like them due to their low cost, transparency, simplicity, unbiased approach and most importantly certainty of Index returns. That is a worldwide phenomenon and India will be no different.

The following are different types of index funds:

-LARGE CAP: -includes top 100 companies in Nifty 500 Index.

HDFC Index Nifty 50 Fund- invests in companies ranked 1-50 in Nifty 500 Index (Average 5 years Return- 17%/Expense 0.40%). The investment objective of the fund is to generate returns that correspond with the performance of the Nifty 50 Index described earlier.

HDFC Index Fund Nifty 50 Plan Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(Holdings- See All)

HDFC Index Fund – Nifty 50 Plan Portfolio | HDFC Mutual Fund Portfolio – Moneycontrol

ICICI Prudential Nifty ETF (17.5/0.05%)

Axis Nifty 100 Index Fund– invests in companies ranked 1-100 in Nifty 500 Index (Expense- 1%)

Axis Nifty 100 Index Fund – Direct Plan – Growth Portfolio | Portfolio – Moneycontrol

ICICI Prudential Nifty 100 ETF (Expense- 0.47%)

-MID CAP: The NIFTY Midcap 150 Index consists of 150 companies (ranked 101-250) from the NIFTY 500 Index.

HDFC Nifty Midcap 150 Index Fund

Nippon India Nifty Midcap 150 Index Fund (Expense 0.23%)

Nippon India Nifty Midcap 150 Index Fund – Growth Portfolio | Portfolio – Moneycontrol

ICICI Prudential Midcap 150 ETF (0.15%)

-SMALL CAP: The NIFTY Small Cap 250 Index consists of 250 companies (ranked 251-500) from the NIFTY 500 Index.

HDFC Nifty Small Cap 250 Index Fund, ICICI Pru Nifty Smallcap 250 Index

Nippon India Nifty Small Cap 250 Index Fund (1.04%)

Nippon India Nifty Smallcap 250 Index Fund – Growth Portfolio | Portfolio – Moneycontrol

SBI Nifty Smallcap 250 Index

MICROCAP: The NIFTY Microcap 250 Index consists of 250 companies ranked below 500 (501–750)

Motilal Oswal Nifty Microcap 250 Index Fund

Motilal Oswal Nifty Microcap 250 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio

-FLEXI CAP: If you wish to hold just one fund, an ideal choice among all about nine equity fund categories, it would be only Flexi Cap Index Funds/totally avoid active funds. They are All-in-One kind of Funds as they include Large/Mid/Small Cap companies. These funds give higher returns than Large Cap funds but are more volatile as they also have Mid/Small Cap companies.

Flexi Cap category Nifty 500/BSE 500 index-based funds that include diversified top 500 companies (Large/Mid/Small Cap) of India/represents the whole Indian stock market and are among all-time best investments in the world. See following funds/ETF along with their portfolio links:

i) Motilal Oswal Nifty 500 Fund (Average 3 Years Return/Expense as in September 2023- 23.3/1.04%)

Motilal Oswal Nifty 500 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings-See All)

ii) Nippon India Nifty 500 Equal Weight Index Fund

iii) ICICI Prudential S&P BSE 500 ETF

(Average 3 Years Return/Expense as in September 2023- 24.7/0.32%),

ICICI Prudential Mutual Fund – ICICI Prudential S&P BSE 500 ETF Share Price, Stock Price, LIVE NSE/BSE – Groww

(See Share Holding)

MULTICAP: Edelweiss Nifty 500 Multicap Momentum Quality 50 Index Fund

HDFC Nifty 500 Multicap 50:25:25 Index Fund

HDFC Nifty500 Multicap 50:25:25 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio

(See Holdings-See All)

VALUE ORIENTED:  UTI Nifty 500 Value 50 Index Fund launched in May 2023. 

UTI Nifty 500 Value 50 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings-See All)

– Nifty 500 and BSE 500 indices are equivalent to the US S&P 500 index.

Comparison of Max etc. returns chart of Nifty 50, Nifty 500 & BSE 500 Indices is given below:

BSE-500 27,654.12 (▲0.35%) S&P BSE – 500 | Google Finance

Instead of taking separate Large/Mid/Small cap index funds, investing only in   NIFTY 500/BSE 500 Index based funds given above would work even better and also prevent cluttering of the portfolio with too many unmanageable funds.

If going for separate funds, then for good average returns the minimum holding period required is 8 years in Large Cap Equity Funds, 10-15 years in Mid Cap and 20 years in Small Cap Funds. As Nifty 500/BSE 500 funds are a mix of large/mid/small cap company stocks, the period may be about 12-15 years.

In short-term large cap funds are less volatile and provide stable growth as they invest in companies that are industry leaders. However, mid- and small-cap funds have higher return potential, but they are highly volatile in nature. During phases of market downturn value of these funds tend to fall more than large cap funds.

So, maximum investment should be in Large Cap Funds- say around 60%, Mid Cap- 25%, and Small Cap- 15% of the portfolio value.

-ELSS (Equity Linked Saving Scheme) Funds: They are both actively and passively managed (index) funds that follow the investment style of Flexi-Cap category funds. Investing in ELSS Index Funds is an efficient/more profitable way to save taxes when compared to the other investment options available under Section 80C of the Indian Income Tax Act, 1961. Lock in 3 years.

-Invest only in one of the following ELSS Index (Merit) Funds/avoid all ELSS Active Funds:

360 ONE ELSS Nifty 50 Tax Saver Index Fund (Average 5 years Return/Expense- 19/0.52%, expense lower than Navi ELSS Index Fund given below)

360 ONE ELSS Tax Saver Nifty 50 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(Holdings- See All)

360 ONE ELSS Nifty 50 Tax Saver Index Fund – Regular Plan – Growth Portfolio | IIFL Mutual Fund Portfolio – Moneycontrol

Navi ELSS Tax Saver Nifty 50 Index Fund (Average 5 years Return/Expense- 19/1.0%)

Navi ELSS Tax Saver Nifty 50 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(Holdings-See All)

Navi ELSS Tax Saver Nifty 50 Index Fund – Direct Plan – Growth Portfolio | Essel Mutual Fund Portfolio – Moneycontrol

Nifty 50 Index on which above two funds are based has given Max Returns of 2094% since January 1999 (Average- 87% per year). See Nitty 50 Max chart/link below:

nifty 50 chart – Google Search

For information after permission by SEBI to launch passive (index-based) tax saving ELSS Funds, IIFL AMC launched India’s first ELSS Index Fund IIFL ELSS Nifty 50 Tax Saver Index Fund (now 360 ONE ELSS Nifty 50 Tax Saver Index Fund) on December 02, 2022.

Let us wait, we may have a few other AMCs too launching passive ELSS Funds though we don’t see this happening with those who already have existing large ELSS Funds. Index Funds have very low expense then active funds and are completely safe. This offers investors an option to save tax with the benefits of an Index.

-After lock-in period of 3 years shift your all ELSS funds corpus including ELSS Index Funds to HDFC S&P BSE 500 Index Fund tactically to avoid/minimize LTCG tax, for higher returns in the long-term.

-INTERNATIONAL EQUITY INDEX (Merit) FUNDS

International Index Funds invest in companies located anywhere in the world outside of its investors’ country of residence.

Below is the INR returns for various geographies for last 10 calendar years. Top performing markets each calendar year have been different, and it is thus prudent for an investor to diversify holdings across multiple markets.

INDIA BASED INTERNATIONAL EQUITY INDEX (Merit) FUNDS

As regards Indian investors, these funds invest in stocks of foreign companies like Apple, Alphabet, Amazon, Microsoft, Facebook, JP Morgan Chase & Co. etc. Some examples of such funds are:

a) Motilal S&P 500 Index Fund (comprises of biggest listed US 500 companies)- Expense 1.06%. For information, Vanguard S&P 500 ETF has Average 5-Years Return of 16.73%.

S&P 500 Companies – S&P 500 Index Components by Market Cap (slickcharts.com)

Mirae Asset S&P 500 Top 50 ETF (Expense 0.57%)

b) ICICI Prudential NASDAQ 100 Index Fund (consists of top Global 100 non-financial companies, Expense 1.0%), ABSL NASDAQ 100 FOF (Expense 0.67%), Axis NASDAQ 100 FOF (Expense 0.67%), Kotak Nasdaq 100 FOF (Expense 0.678), Motilal Oswal Nasdaq 100 FOF (Expense 0.67%)       

– Motilal Oswal Nasdaq 100 ETF (Average 5- Years Return/Expense is 29.1/0.57%)

Nasdaq 100 Index Component Weights – Nasdaq 100 Companies (slickcharts.com)      

c) HDFC Developed World Indexes Fund of Funds: (USA- 17.6%, Europe- 3.6%, Canada- 1.5%, Japan- 1.5%, & Pacific Ex. Japan (Australia, Hong Kong, Singapore, New Zealand)- 1.4% FOF. A Fund of Funds scheme that aims to generate returns through investments in a combination of Overseas Index Funds and ETFs. The scheme will endeavor to track the performance of the MSCI World Index (see chart under Conclusions) and captures large & mid cap representation across 23 Developed Markets (DM) countries. With 1513 constituents the index covers approximately 85% of the free float-adjusted market capitalization in each country.

iShares Core MSCI World UCITS ETF | SWDA

(See Holdings)

The decade of 2013-22 belonged to US equities (S&P 500 Index) followed by Indian equities (Nifty 50) and Developed Markets (MSCI DM). US equities (S&P500) have given staggering returns of 15% CAGR for a period of the last 10 years, which is much higher when compared with the Nifty 50 and MSCI DM (Developed Markets) of 11.9% and 11.4%, respectively (Ref: January 10, 2023- Report titled, The Alpha Strategist by Motilal Oswal Private Wealth).

This showcases that US equities returns have outperformed Indian Equities by nearly 310 basis points CAGR over the last 10 years.

Taxation for Indian International funds is of debt type. Beginning April 1’ 2023, capital gains from investments in international funds are to be taxed as per individuals’ income slab irrespective of the period of holding.

Liberalised Remittance Scheme (LRS) allows you to buy foreign stocks or ETFs directly and helps you save a few bucks in capital gains tax, but you can lose out to currency conversion costs, wire transfers charges and brokerage. Therefore, your post-tax returns won’t be significantly more than international mutual/index funds.

Moreover, other hassles, such as flat 20% tax collected at source (TCS) on Rs 7 lakh-plus investment from October 1, 2023, withholding tax on dividends, declaration of source of money while getting the money back to India, and income-tax returns complications make the LRS route cumbersome.

Hence, international mutual/index funds remain the ideal choice for retail investors for overseas investing. They are simple and convenient.

As per SEBI rules, each fund house can invest a maximum of $1 billion USD (about 8270 crores as on 25.12.2022) in international funds. Further, there is an overall foreign investment limit of $7 billion USD for the Indian mutual fund industry as a whole.

International funds allocation can be 10/15-15/25% of the portfolio value. This gives geographical diversification with exposure to international markets, and a potential hedge against rupee depreciation vs Dollar.

Depreciating rupee adds to Investor returns. Rupee has historically depreciated against USD and EUR over long term. When rupee depreciates the value of foreign asset increases and vice versa. Below chart shows value of 100 changing over last 10 years due to depreciating rupee.

Source: RBI reference rate & FBIL is missing

US markets have outperformed Indian markets in the long-term. Both Nasdaq 100 and S&P 500 indices have outperformed the Nifty in the long-term. See comparison of Nifty 50, Nasdaq 100 and S&P 500 indices charts below:

NDX 16,736.28 (▼0.56%) Nasdaq-100 | Google Finance

(See Max chart)

(6300) Introduction to US Stock Markets | Investment Masterclass – YouTube

GLOBAL INTERNATIONAL EQUITY INDEX (Merit) FUNDS

Global investors may see the following International Index Funds:

i) Vanguard S&P 500 ETF (VOO)- The S&P 500 Index was launched in 1957 by the credit rating agency Standard and Poor’s. It is is one of the oldest indices of the US. The index is made up of stocks of the 500 biggest listed US companies (Average 5-Years Return- 16.73%)

S&P 500 Companies – S&P 500 Index Components by Market Cap (slickcharts.com)

ii) International Funds that exclude US companies:

a) Vanguard Total International Stock Index ETF (VGTSX) Category- Multi-Cap Core, Developed & Emerging markets (Average 5- Years Return- 8.5%) b) Vanguard FTSE All World ex-US ETF (VEU)- Large & Mid-Cap (Average 5-Years Return-8.29) c) Schwab International Index ETF (SWISX)- Large-Cap (Average 5 -Years Return- 8.10%) d) iShares Core MSCI Total International Stock ETF (IXUS)– Large-Cap (Average 5-Years Return- 9.97%)

iii) International Funds that include US companies:

a) iShares Core MSCI World UCITS ETF (SWDA)- Developed Countries. Trailing Returns 5- Years Annualized- 11.21% etc. invest in companies of the whole world b) Vanguard FTSE All-World UCITS ETF (VWRL)- Large & Mid Cap companies of developed and emerging markets. Trailing 5- Years Annualized Returns- 10.44%.

c) Vanguard Total World Stock ETF (VT)/ Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)- Multi Cap. Offers “the entire global stock market”, exposure to large, mid, and small-cap stocks from developed and emerging markets across the world: USA stocks constitute 60% of its portfolio/International Developed Markets- 30%/Emerging Markets- 10% is a dynamic representation of the global equity landscape.

As markets around the world grow or shrink, the composition of VT adjusts accordingly. This feature of VT ensures that investors are always aligned with the prevailing global market trends (Returns since inception 02/07/2019- 9.60, Expense Ratio- 0.10%). Minimum investment required in VTWAX Fund- $3000/VT Fund- about $94.

Benchmark- By tracking the FTSE (Financial Times Stock Exchange Group) Global All Cap Index, VT holds more than 9,600 stocks from the U.S., developed international markets, and emerging markets. 

VTWAX-Vanguard Total World Stock Index Fund Admiral Shares | Vanguard

iv) The largest NASDAQ-100 Index ETF is the Invesco Nasdaq 100 ETF (QQQM) (Average 5- Years Return 29.1%) with $207.19 Billion in assets.

– For broader exposure to the Nasdaq, the Fidelity Nasdaq Composite Index ETF is a great option. It holds more than 1,000 companies, with its largest positions being in Apple, Microsoft, and Amazon. It normally invests at least 80% of assets in common stocks included in the Nasdaq Composite Index. (Average Annual Returns as of 31/08/2023: 5 Years- +12.57%, 10 Years- +15.66, Life- 11.68/Benchmark Nasdaq Composite- 11.6%). Nasdaq Composite Index has returns of 4566% since October 14, 1983.

The Nasdaq Composite is a stock market index that includes almost all stocks (more than 2500 stocks) listed on the Nasdaq stock exchange. Along with the Dow Jones Industrial Average and S&P 500, it is one of the three most-followed stock market indices in the United States. The composition of the NASDAQ Composite is heavily weighted towards companies in the information technology sector. 

The Nasdaq-100 index founded on January 31, 1985, which includes 100 of the largest non-financial companies in the Nasdaq Composite, accounts for over 90% of the movement of the Nasdaq Composite.  Nasdaq 100 index generally recognized as a tech index also includes Pepsi and Starbucks; however, the allocation is not very high. The financial companies are in a separate index, the NASDAQ Financial-100.

Nasdaq 100 Index Component Weights – Nasdaq 100 Companies (slickcharts.com)        

Choosing Between Nasdaq 100 And S&P 500

As of January 31, 2023, Nasdaq 100 has significantly outperformed S&P 500 in terms of performance. Over the past 15 years, Nasdaq 100 has delivered a CAGR of around 16%, while S&P 500 has returned about 8%.

A tilt towards technology stocks makes Nasdaq 100 look more like a thematic index as the FAANG stocks account for a majority of the portfolio of Nasdaq 100. The volatility in the returns of Nasdaq 100 is likely to be higher when compared to S&P 500 Index, which has a much broader representation of the US companies across different sectors. Even in the 2008 correction, the fall in Nasdaq 100 index was 42%, while the S&P 500 was limited to 38%.

So, if you are looking to own a more diversified basket of stocks, the S&P 500 will be the right fit for you. However, those who are comfortable with the slightly higher risk for the extra returns that investing in Nasdaq 100 based fund might generate will be better off with Nasdaq 100 or better invest in both.

v) Smart Beta/Factor Based Funds:

a)  iShares MSCI USA Quality GARP (Growth at Reasonable Price) ETF (Fund Inception: January 14, 2020, Net Assets: $82.74 million, Average Returns since inception: 18.65% as of November 20, 2024).

b) iShares MSCI USA Momentum Factor ETF (Fund Inception: April 16, 2013, Net Assets: $51 billion, Average Returns since inception: 14.07% as of November 20, 2024).

c) First Trust Multi Cap Gr (Growth) AlphaDEX ETF (Nasdaq Exchange/Stocks, Fund Inception: August 05, 2007, Net Assets: $35 million, Average 5-year Return: 14.01% as of November 20, 2024).

d) First Trust Multi Cap Value AlphaDEX ETF (Nasdaq Exchange/Stocks, Fund Inception: August 05, 2007, Net Assets: $141.63 million, Average 5-year Return: 11.64% as of November 20, 2024).

CONCLUSIONS (India & International Equity Index Funds):

It is astonishing to know that legendary investor Warren Buffett (net worth 113 billion USD) has generated his enormous wealth from stock market (3.6 million or 36 lacs percentage returns from 1964 to 2021) with a compounded annual gain of just 20% returns (24% if dividends included). So, you require just 20% returns in dollar currency in long-term to be rich like him your idol becomes your rival (Source-modified: Financial Literacy Awareness Webinar on December 25, 2022/January 08, 2023, etc. by Varun Malhotra, IIM Ahmedabad-India/CFA Institute-USA).

The lion’s share of the 93-year-old’s wealth was built after four decades of investing, 99% of his $113 billion empire was made after his 50th. So, for him 40-50-60 years define ‘long-term (Source: Mutual Fund Insight Magazine- India, December 2023, Page-16). Warren Buffet started investing with just $114.75 in 1942. Later, in his first partnership, he invested only $1001. By the time he was 30, he had a net worth of $1 million.

Money can be lost in the banks but never in Equity Index Funds which generate sure long-term wealth. Keep investments few & simple, especially for the new investors. Following are the main/major Index Funds of India and the world (represent four important world stock market indices- Nasdaq 100, S&P 500, FTSE All Cap Index, & Nifty 500/BSE 500)- the best investments in the world:

–For sure returns, Indians just invest (SIP) for the long-term/forever only in Equity Index Funds- i) HDFC S&P BSE 500 Index (constitute diversified top 500 Large/Mid/Small Cap companies ranked 1 to 500 of in Nifty 500/BSE 500 Index/represents the whole Indian stock market. Average 3 Years Return- 18.7%, November 2023) and Smart Beta/Factor based index fund UTI Nifty 500 Value 50 Index Fund launched in May 2023 + International Index Funds- i) ICICI Prudential NASDAQ 100 Index ii) Motilal S&P 500 Index & iii) HDFC Developed World Indexes FOF builds an Equity Index Funds Portfolio that broadly covers worldwide markets.

Nifty 500/BSE 500 indices are equivalent to the US S&P 500 Index. May invest up to 20% in International Index Funds whichever is available as per SEBI regulations.

TABLE- India/International Index (Merit) Funds for Investment 

(Much better Indian index funds- i) Edelweiss Nifty 500 Multicap Momentum Quality 50 Index Fund (NFO listing around November 11, 2024) ii) Nippon India Nifty 500 Equal Weight Index Fund iii) HDFC Nifty 500 Multicap 50:25:25 Index Fund have been launched in 2024, replace HDFC S&P BSE 500 Index Fund with these funds. The Nasdaq 100 Index doesn’t have Finance Companies)

-In Indian Funds may add Tata Nifty Midcap 150 Momentum 50 Index Fund and SBI Nifty Smallcap 250 Index Fund.

-Global/International investors do SIP/buy ETFs for the long term- Vanguard S&P 500 ETF (VOO) (Average 5-Years Return 16.73%), Invesco Nasdaq 100 ETF (QQQM) (29.1%), and Vanguard Total World Stock ETF (VT) that cover markets worldwide. 

“Index is Forever- Invest in Index &Relax”– Ignore active funds/noise

(Active Funds are like retailers/risky-random-high cost, Index/Merit Funds are institutions/safe-systematic-low cost. Active funds are monitored by the fund manager while index funds are managed by the market itself)

Top funds should also have class/special data as given below:

-See “Portfolio” of the above Funds in the following links-

HDFC S&P BSE 500 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings/See all)

UTI Nifty 500 Value 50 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings/See all)

Tata Nifty Midcap 150 Momentum 50 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings/See all)

SBI Nifty Smallcap 250 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings/See all)

ICICI Prudential NASDAQ 100 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings/See all)

Motilal Oswal S&P 500 Index Fund Direct Growth – NAV, Mutual Fund Performance & Portfolio (groww.in)

(See Holdings/See all)

iShares Core MSCI World UCITS ETF | SWDA

(See Holdings)

– See the comparative chart of Max etc. returns of different world market indices which are best world investments (Nasdaq 100/BSE 500/S&P 500/MSCI Inc) representing the above Index Funds below:

NDX 16,777.40 (▲0.12%) Nasdaq-100 | Google Finance

MSCI World Index- Morgan Stanley Capital International, is a benchmark that tracks the performance of equity markets across the developed world.

TABLE- Multibaggar Returns Calculation

See returns in HDFC Compound Interest Calculator:

Compound Interest Calculator – Calculate Compound Interest Online (hdfclife.com)

Minimum Investment required is only Rs 100/500/1000

Note: 60/99 years calculation done considering child age ‘0’/Index Fund Investments will pass on to future generations. The Compound Interest Calculator has a maximum cap of Returns- 30%/Years- 99.

https://www.youtube.com/watch?v=5dD7BqfrQ2w

 – Avoid Sectoral/Thematic etc. NFO (New Fund Offer) active equity funds launched by AMC’s unless they offer some unique product like Nifty 500 Multicap/Equal Weight Index Fund, Smart Beta-Factor (Alpha, Momentum, Value, Quality) based Index Funds etc., and invest only in already available index funds, enough of them are already there. In Equity Funds restrict to Index Funds only.

-CAUTION- Financial Advisors: People/media do not tell real/simple things, either they just don’t know or fear losing business/clients. In a study by Bloomberg, shockingly 85% of the financial advisors on seeking their advice on existing low-cost/diversified portfolios, suggested investments that were objectively worse but would yield higher commissions. Even in active funds they/media/business TV channels promote more risky funds (sectoral, thematic) where they get higher commissions. Keep away from such types.

There have also been many cases in the past where the “experts” charged money for their ‘advice’ on trading in the stock market while they made heavy losses on their personal investing decisions (source: Article “Exercise caution with finfluencers” in Value Research, India- November 3, 2023).

Sure Investment Plans

i) So, under Equity Funds invest for the long-term only in Nifty 500/BSE 500, Nasdaq 100, S&P 500 index, and MSCI Index-based funds given above under “Conclusions” and become independent/even better than advisors.

ii) For goals that are 3-5 years away (medium-term) Equity Saving Funds (Hybrid Funds) are fine- Axis Equity Saver Fund, HDFC Equity Savings Fund, SBI Equity Savings Fund, Mirae Asset Equity Savings Fund etc.

iii) For goals that are 1-3 years away Short-Term Debt Funds (HDFC Short Term Debt, ICICI Pru Short Debt, SBI Short Term Debt) and for less than one-year duration Liquid Funds (HDFC Liquid Fund, ICICI Pru Liquid Fund, SBI Liquid Fund) are the right choice. Avoid investing your short-term corpus in equity (Source-modified: Mutual Funds Insight Magazine- India, January’2023, page 41: Bull Runs dos and don’ts).