US Benchmarks - A Short Note
I am focusing exclusively on US market only.
I won’t be going into details of which fund the FoF holds or what is the sectoral/stock specific weight-age of the fund. Also, not explaining what the individual benchmarks mean or what they hold or the expense ratios. Most change the composition of their index once or twice a year. Few have changed from value stocks to growth stocks which mean if the value stocks in US outperform these growth stocks would most probably suffer or underperform. All this is available online.
I am tagging a few who were already in MF investment mode or planning to.
The current approximate definitions of market cap in US market are as follows:
• Mega/Giant-cap: Market cap of $200 billion and greater.
• Big/Large-cap: $10 billion and greater.
• Mid-cap: $2 billion to $10 billion.
• Small-cap: $300 million to $2 billion.
• Micro-cap: $50 million to $300 million.
• Nano-cap: Under $50 million.
Indices like the S & P 500, Nasdaq 1000, Sensex or Nifty are market-capitalization-weighted indices. Higher the market cap of a stock, higher the exposure in the index (different for all index) – Keep this in mind.
ETFs can be traded throughout the day like stocks, whereas index funds or Fund of Funds can be bought and sold only for the price set at the end of the trading day, once markets close.
The higher expense ratio of most Fund of Funds (domestic funds investing in US mutual funds which in turn invest in US Markets) can be offset by investing in Index funds or ETFs for fairly long terms like 20-25 years+. The expense ratio difference between the two types is 2%.
As of today (August 5, 2021), the total number of mutual funds in India which are investing exclusively in US markets are twelve and follow the following FIVE benchmarks – Nasdaq 100, S&P 500, Russel 1000 ( including its sub categories), Russel 3000 and Fang+.
Following are the most popular funds with different benchmarks:
1. Motilal S&P 500 Index Fund – S&P 500 (Giant, Large) – replicates the index, is not a fund of fund. The S&P 500 covers approximately 80% of US Stocks.
2. Motilal Nasdaq 100 ETF – -Nasdaq top 100 based on market capitalization
3. Motilal Nasdaq 100 FoF- – Nasdaq top 100 based on market capitalization. Invests in Motilal Nasdaq ETF (India).
4. Franklin US Opportunities Fund – Russel 3000 i.e Russel 1000 (Large Cap & some Midcaps) + Russel 2000 (Small/micro/nano Cap) –covers 98% of the US stocks.
5. DSP US Flexible Equity – Russel 1000 . Approx 92% of the US stocks are covered.
6. Edelweiss US Technology FoF- Russel 1000 Equal Weighted Technology; focuses on disruptive technology * *explained in footnote explained in footnote.
7. Mirae FANG+ ETF and FoF- The Mirae Asset NYSE FANG+ ETF will be managed passively with investments in stocks in a proportion that match as close as possible to the weights of these stocks in NYSE FANG+ Index. The NYSE FANG+ Index is an equal-dollar weighted Index designed to represent a segment of the technology and consumer discretionary sectors consisting of 10 highly-traded growth stocks of technology and tech-enabled companies.
FANG is an acronym for Facebook, Amazon, Netflix and Google, first coined in 2013 by CNBC host Jim Cramer. NYSE FANG+ Index consists of 10 of the world’s highly traded, next-generation tech companies which have and are still shaping our future with a combined market cap of $7.7 trillion as on Feb 2021 – That’s 3x of total BSE traded companies!
- - Russel 1000 Equal Weighted Technology – Relatively new benchmark. Came into existence in 2017. It is a multi-cap sectoral fund.
An equal-weighted index is one in which all the stocks in the eligible universe have similar weights.
Russel 1000 index is a market-cap-weighted index of the 1000 largest US companies. Technology and technology-related stocks of the Russel 1000 are eligible for inclusion in the Russell 1000 Equal Weight (EW) Technology Index.
At the cost of repetition – Indices like the S & P 500, Nasdaq 1000, Sensex or Nifty are market-capitalization-weighted indices. Higher the market cap of a stock, higher the exposure in the index.
Index house FTSE Russel adopts a two-step equal-weighting approach to create the Russel 1000 Equal Weight Index. Nine sectors from the Russel 1000 index – Materials & Processing, Utilities, Consumer Staples, Energy, Producer Durables, Health Care, Consumer Discretionary, Financial Services and Technology are first equally weighted and then the stocks within each sector are equal-weighted.
Although an equal-weighted index offers better diversification and does not allow a few stocks to dominate the index, it is also quite risky. When the going is good, they may outperform a market-cap based index but when things go south, they fall harder.
Within each of the aforementioned Five benchmarks, there might be other subsets like value, growth, mid caps, small caps, technology, retail, consumption etc. Etc.
For tax purpose – all international funds will be treated like an debt fund. Indian government will not be giving tax benefits for investing overseas & there will not be any option to claim the incidence of double taxation treaty.
Long term capital gains will be taxed 20% with Indexation (if held for more than 3 year) or Short term capital gains will be taxed as per your income tax slab (if held for less than 3 years).
There is nothing more to it.Disclaimer – All the information above has been sourced from Google. I am invested in all of the aforementioned funds except IDFC, Nippon, Nasdaq ETF & Fang+ ETF among a few others not mentioned here.
As of today, there is no way to buy US mutual funds from India. You can buy only US stocks.
As an end note – A question for you all MF enthusiasts here. Name the only Indian fund ever to feature in World Top 100 Funds. Its’ one year returns (absolute) were a whopping 110%, 60% for 2 years (annualized) and 35% close to 3 years (annualized). And this was pre-Covid times (Before December 2019).
Hint – It was a mid-cap fund and all fund managers of this fund were foreigners!
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Not quite. I needed different exposure to different sectors/industries of US economy.
Very good article written in a simplistic style yet fully conveying the basic understanding of the subject. VU+.
Thanks for the information and the tag. VU+
I am already invested in Mirae Asset FANG+ETF, Franklin Feeder US Opportunities, ICICI Pru US Bluechip, Kotak Global Innovation FoF, Edelweiss US Tech FoF, Edelweiss Greater China fund to increase my exposure to international markets. Underlying securities of some of these funds might overlap.
Good choice of funds. Have you come across any platform from where we can buy US mutual funds?
I haven’t touched other international funds benchmarks. Not many look beyond USA.
nice article, vu+
Thanks. Btw etfs incur trading charge??
Yes. Along with other SEBI charges as they are traded like stocks.
You also need to keep in mind that STT is usually not deducted on their trades automatically by the broker and you need to manually enter this charge when you file your IT returns.
Vu + kG . Great article.
Nice detailed article.
Me personally invested in fractional shares of some US companies which I use in day to day life
But the br fees and exchange rates eats most of the profit away , even tho I am sitting at 130% returns .
Only option is to sell when rupee looses more value in future 
Was thinking about MF route but backed out when I saw some where under performing
I am unable to edit my post to add this important bit of information:
Indian investors enjoy returns from currency depreciation in ETFs as currency is not hedged in most international funds. In the last 21 years, it has averaged around 2.75-3.25 % p.a.
Any source worth reading ?
Another Update – The NSE International Exchange, a wholly-owned subsidiary of the NSE, will soon introduce trading in select US stocks.
Noice 
Update: NAVI mutual fund will soon introduce Nasdaq 100 FoF and Total US Stock Market Fund of Fund.
nice note, thanks for tagging bro 
As an end note – A question for you all MF enthusiasts here. Name the only Indian fund ever to feature in World Top 100 Funds. Its’ one year returns (absolute) were a whopping 110%, 60% for 2 years (annualized) and 35% close to 3 years (annualized). And this was pre-Covid times (Before December 2019).
Hint – It was a mid-cap fund and all fund managers of this fund were foreigners!
what’s the answer though?
Standard Chartered Premier Equity Fund
Changed (and terribly underperformed) later on as IDFC Imperial Equity Fund when IDFC took over SC Mutual Fund portfolio.
Nowadays called IDFC Focused Equity Fund.
2 more funds have launched in the last 1-2 months tracking different US indexes.
What are those funds and how are you accessing those markets ??
One additional info afaik:
ICICI US BlueChip Equity MF and Nippon US Equity Oppertunity MF are the only 2 “actively managed” US mutual funds from India; Rest all are either FoFs or ETFs which are essentially passively managed (the underlying mfs might be actively managed though).
That’s there but I fail to understand how can it underperform its benchmark time and again!?
Its one year performance relative to the benchmark index fund is less by 8% – that’s really high.
ICICI one I mean.
Now that SEBI has stopped AMCs to allow new lumpsum or sip registration into foreign investment, what’s the best way to invest in US based equity ? Indian ETFs with underlying US stocks is still a way like N100 but no new units getting allocated from AMCs so they are on a premium now. Other way to directly invest into US ETFs via apps like INDmoney, Vested and all, but they charge a decent fee which effectively brings down the returns.
INDmoney(and others) doesn’t charge anything including no forex fees . Withdrawal fees as of now is $12 or $5, so nothing much.
@admin please move this to Personal Finance or to Finance section.
Cc: @Ramta_Jogi
@Ramta_Jogi I had invested a decent amount in Nasdaq (QQQ) and S&P (VOO) ETFs last year during the dip (relatively). My goal horizon was long term and wanted to benefit from the indexation of it's debt feature over equity, however now with the new taxation, it doesn't looks that lucrative on this front; Although still fine with their historical benchmark, currency depreciation, and geographical diversity. How would you suggest on continuing the buy-and-hold long term investment on this ? Since now, there's no difference in trading vs investing on these funds (wrt taxation), so rebalancing it periodically makes more sense, ie. sell when it's above my desired asset allocation, and buy when it's below... right now my mindset was of a buy-and-hold for these, rather than using them during rebalancing.
DK from ValueResearch is saying that holding foreign ETFs/Stocks via foreign brokers is still eligible for indexation benefits (timestamp - 7m37s):
Now that International MFs have been the victim of no debt taxation, I believe AMCs can easily tweak or create a new Fund-of-Fund or a composite Index Fund, which can be a 35% Nifty50 + 65% S&P500/NASDAQ100. This will make the fund eligible for debt taxation (with indexation benefits) even though it's a pure equity fund. The ratio can be tweaked to be more balanced based on the market demand like a 50-50 also, which also sounds attractive to investors. Such a mutual fund will be perfect for Indian investors who want to invest in US equities, especially since now the direct US equity route has also a hurdle of 20% TCS.
@Ramta_Jogi @guest_999 @InvestPotato The above idea seems great, at least on paper; not sure what's holding the AMCs from coming with such an NFO.
Your stream of thought seems to have answered your own question.
AMCs "might be" liable to pay that 20% TCS for any fresh investments made by them in International stocks and hence not keen to increase their headache.
thanks for wonderful post sirg. 1 swal, you said that you invest in all of above funds is it because all track different benchmarks?
ur writing skill is wonderful. aap kya karte ho?