We are living in a world filled with multiple possibilities. From food and coffee to even the stock market, today, we can diversify, select based on preferences and even shift to finer alternatives.
There was a time when people were hesitant to even invest in the Indian stock market. Fear of losing ousted the satisfaction of gaining. But, the narrative has remarkably changed today.
Many Indian investors are now considering even US Stocks to make high returns. Everyone wants to invest in one of the highly touted US indices, the S&P 500 index. But what is S&P 500? Can Indian investors participate? If yes, then how?
Let’s understand how to invest in the S&P 500 from living in a country more than 8000 miles away.
What is the S&P 500 Index?
The index Standard and Poor’s 500 is popularly known as S&P 500. It comprises the 500 most coveted and influential US companies. Established in 1957, S&P 500 is the first market cap-weighted index in the US; thus, it effectively captures the collective market sentiment. It is a broad-range key market indicator that tracks the performance of the listed 500 companies, making it a highly authentic index.
Besides, not every company can bag a spot in the prestigious S&P 500 index. The index houses leading brands like Disney, Microsoft, Amazon, and Alphabet. To get listed in the index, a company has to satisfy certain conditions, including earning a specific market cap (at least $13.1 billion), having most of its shares with the general public, and being a public company for at least a year.
The index consists of companies from a wide range of various domains. Compared to NASDAQ, the industry weightage is not limited to just Information Technology. While NASDAQ gives nearly 60% coverage to IT, it occupies only 26% of the S&P 500. There are many companies from sectors like health care(15%), financials(10%), communication services(9%) and energy(4%), amongst others.
What started with just 90 companies today lists the powerful 500 with an estimated $36 Trillion of market capital.
Is it possible to invest in S&P 500 Index from India?
Yes, Indian investors can invest in the S&P 500 through multiple channels like investing directly in the index, an Index fund, or an Exchange Traded Fund(ETF). Let’s walk you through the procedure in detail.
Comparing S&P 500 Index with Nasdaq Composite
|The S&P 500 contains a list of 500 diverse companies and, similar to Nasdaq, gives weightage to these companies based on the market capitalisation.||The Nasdaq composite has more than 3500 stocks listed and assigns weightage to companies based on market capitalisation.|
|It is considered a better index to gauge the economy’s overall performance.||More oriented towards the technology sector’s performance, comprising more than 50% of the index.|
|It is slightly more volatile in nature because it has listings of several sectors. So the gains may be higher than normal on days when the market does well and vice-versa||Lesser volatility due to the concentration of one particular sector.|
What is S&P 500 Index Fund?
You can often witness Warren Buffet actively promoting index funds. But, what is an index fund? It is a low-risk and cost-efficient investment bundle of shares in the form of ETFs or mutual funds that mirror the performance of an index. The S&P 500 index funds invest in the 500 companies comprising the index. The mechanism is to create an investment portfolio by investing in a bundle of companies and not purchasing shares of just one entity. Simply put, an index fund is a comfortable way to hedge risks, diversify assets and increase your wealth.
You might be muddled in figuring out how to invest in S&P 500 index fund. If so, you can start investing by utilizing the services of an online trading platform like Stockal. Moreover, one of the simplest ways to enjoy the benefits of the index fund is via ETFs. But, in India, the terms Index Fund and ETF are often used interchangeably. You can exercise Index funds through different investment funds, including ETFs. Let’s explore what we understand about ETFs.
What is an ETF?
Exchange Traded Fund operates like a mutual fund but trades like shares kis a kind of investment fund. It is a pool of securities listed as a single trade on the stock market and can be traded like a normal stock. They can be bought or sold only through a registered broker, firm or an online trading platform. In other words, when purchasing units of an ETF, you are taking in units of a portfolio tracking the native index.
How do an Index Fund and ETF differ?
|Unlisted managed funds.||Traded in the stock market like shares.|
|The price of an index fund is the net asset value of its underlying assets.||ETF’s price is based on its market performance.|
|Price discovery is only at the end of the trading day.||Buying or selling happens throughout the trading day.|
|Minimum investment is required||No requirement of minimum investment.|
|Generally, no brokerage fee.||A brokerage fee exists.|
Now, since the mystery behind index funds and ETFs are solved, let’s know the crucial features of investing in the S&P 500.
Consider the Following Factors Before Investing in S&P 500
Geographical Diversification: A country is subject to multiple volatilities arising out of political risks, market risks, inflationary pressures, currency risks, and national emergencies, amongst others. Hence, exploring different countries to diversify your investment portfolio is prudent. Knowing how to invest in the S&P 500 opens the door to international markets and competent multinational corporations. You can realize the benefits of being part of successful ventures outside your country of residence and mitigating investment risks.
Exposure to US stocks: The S&P 500 comprises stocks of leading global brands covering multiple industries. The US market looks promising if you aspire to explore healthcare, IT, technology, retail, or energy industries. Today, with cost-effective options to invest in a country with firm financial regulations and a strong currency, making sound investment decisions is a possibility.
Fractional Investing: Mega stocks like Apple or Google can trade at expensive rates. However, fractional investing permits you to own a part or portion of the share. Yes, you heard it right. You are no longer required to hold the share completely. Since S&P 500 possess multiple leading brands, you can relish its benefits by building a portfolio despite limited funds.
As you realise the benefits of global investing, let’s understand how to buy S&P 500 in India.
How to invest in S&P 500 index from India?
- Invest Directly in individual S&P 500 stocks with Stockal
Nowadays, investing only in India is no more the norm. Platforms like Stockal are successfully breaking the barriers to investing globally. They build cross-border bridges for Indian investors searching for investment options abroad. You can invest directly in S&P 500 with one of their exciting investment options. One major benefit of investing in US stocks from Stockal is the option of fractional investing. With this facility, it is possible to own a fraction of a share of some of the major companies listed in the S&P 500. You can invest an amount as low as $1.
- Invest in curated ETFs or index funds
Starbucks introduced premium coffee to Indians. Similarly, investment opportunities abroad expose you to vast opportunities that are generally absent locally. You can grow your portfolio by investing in ETFs. Stockal facilitates a hassle-free investing experience with a completely digitized LRS procedure. They also help you W8 – BEN tax form, making compliance a cakewalk.
- Invest in US ETF that tracks S&P 500
Today, investing in US ETF stocks is permissible as per RBI’s Liberalized Remittance Scheme (LRS). You can open a US trading account with Stockal and take your first steps to international investing. You can go for a cash management account, and in no time, you can use and manage your funds anytime, anywhere.
- Invest in Indian ETFs that track S&P 500
You can also go for Indian ETFs, which track the performance of equity baskets trading on stock exchange markets. Generally, the minimum investments vary but start as low as ₹500.
- Invest in Indian / International Mutual Funds that invest in S&P 500 stocks
There are mutual funds which invest in S&P 500 stocks. They invest in stocks of listed companies situated abroad. The risk is usually higher.
There are multiple channels available to you for starting your investment journey. While some offer higher returns, some provide low risks. Investing when, where and how much depends largely on your risk appetite. But, today, investing has become more accessible, low-cost and straightforward. One of the best ways to tap into the benefits of the US market is to invest in an index fund or an ETF. Stockal aids you in making the right investment decision with their curated, ready-made portfolios. The proper investment mechanisms are assured to introduce you to a journey from which you would not want to return. Understand your risk appetite because there is nothing better than taking suitable risks to enjoy higher returns.