Mutual Funds

Motilal Oswal S&P 500 Index Fund NFO: Go global and diversify your portfolio

Yoganand D | Updated on April 18, 2020 Published on April 18, 2020

Valuation of world’s largest index appears attractive with PE multiples of 16-17 times

The on-going global market correction can be a buying opportunity for long-term investors to diversify their portfolios. The new fund offer (NFO) of Motilal Oswal AMC’s Motilal Oswal S&P 500 Index Fund provides domestic investors an opportunity to go global by investing in the world’s largest index, S&P 500 index. It is a passively managed, open-ended mutual fund scheme tracking the S&P 500 index of the US. The scheme is open for subscription till April 23. It is India’s first passive fund mirroring the S&P 500 index.

Why S&P 500?

The S&P 500 index is among the world’s most popularly tracked and largest indices with a track record of 63 years. The index is the best single gauge of large-cap US equities used in the forecast of economic direction.

The index measures the performance of leading 500 companies and covers approximately 80 per cent of available market capitalisation. It is a large-cap-based index.

Notably, the top four passive funds, by AUM, worldwide track the S&P 500 index. Following the recent corrective decline inMarch, the index appears to have reached an attractive valuation with PE multiples of 16-17 times.

Besides, the dividend yield of the S&P 500 index is at a five-year high and well above the historical average.

In terms of global indices, the S&P 500 TRI in US dollar has delivered CAGR returns of 9.6 per cent in the past decade.

The index has clocked CAGR returns of 17.8 per cent in Indian rupee over the past 10-year period, while the Nifty 500 TRI has gained 9.6 per cent.

Historically, a large portion of sales of S&P 500 constituents has been from foreign countries. For instance, in 2018, more than 40 per cent of the sales were reported from foreign countries.

The top 10 companies’ combined index weight is 23.9 per cent. The information technology sector has the highest weight — 23.2 per cent.

Should you invest?

Motilal Oswal S&P 500 Index Fund is the India’s first passive fund mirroring the S&P 500 index. However, a few actively managed global funds — Franklin India Feeder - Franklin US Opportunities, Kotak US Equity, DSP US Flexible Equity and ICICI Prudential US Bluechip Equity — and one exchange-traded fund (Motilal Oswal Nasdaq 100 ETF) investing primarily in US stocks are already available in the Indian mutual fund space. Unlike ETFs, index funds don’t face liquidity issues.

These funds provide Indian investors access to the world’s largest and well-known companies such as Apple, Amazon, Berkshire Hathaway, Coca-Cola, Facebook, Alphabet, Microsoft and Procter & Gamble. All international funds are treated as debt funds in the Indian taxation system.

Motilal Oswal S&P 500 Index Fund can be a hedge against rupee depreciation for the Indian investors. The index has a very low correlation with Indian equity market, providing an opportunity for diversification. Ideally, international funds can form 5-10 per cent of your portfolio. Investors with a high risk profile can consider the SIP route while investing in the fund.

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Published on April 18, 2020
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