Last Updated on December 29, 2021 at 6:25 pm
Subbiah asks, “Dear Pattu Sir, ICICI Pru NASDAQ 100 Index Fund will be available for investing from next week (NFO period is from Sep 27 to Oct 11 2021). Can we buy this instead of MO Nasdaq 100 FOF or Kotak Nasdaq 100 FOF as it is a simple index fund?”
ICICI Pru NASDAQ 100 Index Fund is an open-ended index fund replicating NASDAQ-100 Index. That is, it will directly invest 95% to 100% of its assets in N100 stocks. The Nasdaq 100 consists of the 100 largest non-financial companies listed on the Nasdaq exchange.
With tech giants like Apple, Microsoft, Google and Facebook dominating the index, it has caught the fancy of many mutual fund investors who dig no deeper than trailing returns. Today, looking at its recent performance, many of us have forgotten that the index was “underwater” for the first 15 years of this century (early 2000 to late 2015). Most investors who want a slice of Nasdaq 100 or the S&P 500 only desire returns. They often do not consider the responsibility of regular portfolio rebalancing.
We have recently pointed out that actively managed international equity fund options are expensive and tend to underperform benchmarks. See:
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
- Axis Global Innovation Fund of Fund Review
- ICICI Prudential US Bluechip Equity Fund Review
- PGIM India Global Equity Opportunities Fund Review
Passively managed international equity fund options have significant tracking error issues: Tracking errors of MO S&P 500 Index fund, MO Nasdaq 100 ETF and FoF. It remains to be seen if Mirae Asset S&P 500 Top 50 ETF and FOF (link points to fund review) would fare any better.
Which international equity option is better for an Indian retail investor?
S&P 500 vs Nasdaq 100: From a practical viewpoint, most Indian investors are only looking for a small slice of US stock exposure. So it then should not matter whether this slice is the Nasdaq 100 or the S&P 500. What matters more is regular two-way rebalancing (equity to debt and vice versa or international equity to domestic equity and vice versa as per the situation demands). For investors desiring significant international equity exposure, the MO S&P 500 index fund is a reasonable choice. It is less volatile and more diversified than the Nasdaq 100. See: Motilal Oswal S&P 500 Index Fund: What return can I expect from this?
Indian mutual funds investing in international stocks: Those worried about the non-equity taxation angle can consider a concentrated exposure in funds like Parag Parikh Flexicap or Axis Growth Opportunities. See Axis Growth Opportunities Fund vs Parag Parikh Long Term Equity Fund. This would also eliminate the need for a periodic reset of international exposure.
The main drawback here is fund manager performance risk. IMO this is still a reasonable risk considering the high tracking errors + higher taxation + higher maintenance in dedicated passive international equity funds. Trivia: My international equity exposure is about 16% from Parag Parikh Flexicap. See: I rebalanced my retirement portfolio twice this year thanks to the bull market.
Options for investing in the Nasdaq 100
For those desirous of investing in the Nasdaq 100, there are four options at the time of writing.
- Motilal Oswal NASDAQ 100 ETF (launched 2011)
- Motilal Oswal NASDAQ 100 FOF that invests in Motilal Oswal NASDAQ 100 ETF (launched Nov 2018)
- Kotak Nasdaq 100 FOF that invests in IShares NASDAQ 100 UCITS ETF (Launched Feb 2021)
- ICICI Pru NASDAQ 100 Index Fund (Launched Sep 2021).
Motilal Oswal NASDAQ 100 ETF had significant NAV-price deviations until the AMC actively reduced it after AUM started to flow into Motilal Oswal NASDAQ 100 FOF.
A good 70% of the AUM in the ETF is held by the FOF. This makes the MO ETF a poor choice of investment. Volatile US markets can result in significant NAV-price variations – the risk carries over to the FOF as well. The FOF typically buys and sells the ETF at market price except for large orders. The MO FOF is a reasonable choice but still suffers from appreciable tracking errors, as pointed above.
Kotak Nasdaq 100 FOF is theoretically expected to fare better than Motilal Oswal NASDAQ 100 FOF because the tracking errors of the underlying ETF are lower. This is a comparison of the NAV of both funds since Feb 2021. We cannot tell them apart as yet and need some more time.
Note: The Nasdaq 100 notional net return index (ticker: XNDXNNR) is a better choice as a benchmark as this accounts for dividend withholding tax. However, for the short time window considered above, there is barely any difference between the net total return index (ticker: XNDX).
Should you invest in ICICI Pru NASDAQ 100 Index Fund?
We recommend not investing in ICICI Pru NASDAQ 100 Index Fund for now as its ability to effectively track the Nasdaq 100 is unknown. More time is required to compare the tracking errors of the ICICI Nasdaq 100 index fund and Kotak Nasdaq 100 FOF with MO Nasdaq 100 FOF.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)