This sub has been a wealth of information for me. Thought I would contribute some of my research.
There have been many discussions on investing in US S&P 500 via Indian MFs and via brokers (vested.in, TD Ameritrade, HDFC, ICICI etc.). But I couldn't find any info on which option offers better returns (after different costs were accounted). So I made this calculation sheet to figure it out.
See Google sheet here for details.
investing via international brokerage (option 2) is the winner (assuming 1+ Lac invested for 4+ years). However, given the number of variables and assumptions that have to be made, there is never a single answer. Meaning - in a minority of scenarios, investing via Indian international funds (option 1) is the winner.
For those of you who will be reading the spreadsheet - Feel free to share suggestions for improvement. Let's make this a reusable resource for the group.
Future value for Indian fund (option #1 above) = Principle x (1 + 10% - ER - TER ) ^ nof yrs
FV of US index fund scenario = (Principle - currency conversion costs) x ( 1 + 10% - ER - TER) ^ nof yrs
There have been many discussions on investing in US S&P 500 via Indian MFs and via brokers (vested.in, TD Ameritrade, HDFC, ICICI etc.). But I couldn't find any info on which option offers better returns (after different costs were accounted). So I made this calculation sheet to figure it out.
Options evaluated:
- Indian index fund with (e.g. Motilal S&P 500 Index Fund)
- US index fund (e.g. Charles Schwab S&P 500 Index Fund), via international/Indian brokerages (TD Ameritrade, vested.in, Charles Schwab, HDFC, ICICI etc.)
See Google sheet here for details.
Result:
investing via international brokerage (option 2) is the winner (assuming 1+ Lac invested for 4+ years). However, given the number of variables and assumptions that have to be made, there is never a single answer. Meaning - in a minority of scenarios, investing via Indian international funds (option 1) is the winner.
For those of you who will be reading the spreadsheet - Feel free to share suggestions for improvement. Let's make this a reusable resource for the group.
Key Assumptions:
- Motilal S&P 500 ER: 0.5%
- TER (Tracking Error): 0.85%
- US Index fund chosen for option 2: Charles Schwab S&P 500 Index Fund
- ER: 0.02%
- TER: 0.72%
- INR - USD conversion fees and commissions: 1.95%
- Annual rate of growth of USD over INR (To calculate final value in x years): 1.5%Here's why I chose 1.5% - most international forecasts assume 2.5% annual appreciation of USD. Historical data over past 6 years has also shown similar growth. I have rounded it down to 1.5% as a way of balancing optimistic and conservative estimates. Even if you assume a smaller growth like 1%, option 2 still comes ahead. If this rate comes down to 0% option 1 becomes the winner. But think about what that means- will USD really stay the same in 5 years? possible. But definitely not a high probability outcome.
Methodology:
Future value for Indian fund (option #1 above) = Principle x (1 + 10% - ER - TER ) ^ nof yrs
FV of US index fund scenario = (Principle - currency conversion costs) x ( 1 + 10% - ER - TER) ^ nof yrs