S&P 500 Gains Over 10% in Six Months: Which are the Top Indian Mutual Funds Investing in US Stocks?

The US equity market outperformed in 2024 with the S&P 500 gaining 23.3% absolute returns, building on the gains of 24.2% in 2023. Meanwhile, the large-cap index, Dow, gained 12.9% and the tech-heavy Nasdaq 100 gained 28.6%.

The rally was driven by the enthusiasm surrounding AI and its potential productivity boost. It is noteworthy that AI chip leader Nvidia rose by a staggering 171% while iPhone giant Apple gained 30%, notching new highs of their own in 2024.

The robust US economic growth even as many experts predicted a slowdown also drove optimism among investors. Moreover, the US Federal Reserve cut its benchmark interest rate by a full percentage in the latter half of the year, bolstering confidence that the U.S. economy can sustain its growth. Stocks also rallied sharply following Donald Trump's win in the Presidential elections held in November 2024. Traders cheered the prospect of lower taxes and a looser regulatory approach under a Trump administration will bode well for the economy.

Over the last six months the S&P 500 has gained more than 10%, at a time when the Indian equity market has witnessed sharp volatility and correction. The BSE 500 index has cracked 5.5% in the last six months and is down by a sharp 13% from its all-time high of September 2024, as of January 29, 2025.

If we look at the historical returns, S&P 500 and BSE 500 have often shared a positive correlation with one another. However, we look at the past 10 year data, US stocks tend to be less volatile compared to Indian stocks. In terms of sector, while domestic indices are heavyweight on financials, US markets favour tech stocks. Besides, with India turning into a major global economy, it is now less dependent on the US to steer its economic and monetary decisions. Thus, the correlation between the two markets is expected to reduce.

This highlights that exposure to US market can act as a good risk mitigation technique, enabling optimal risk-adjusted returns.

Which are the Indian Mutual Funds investing in US stocks?

1) Direct US Equity

These funds invest directly in large, mid, and, small-sized US stocks across diverse sectors through active management of the portfolio.

2) Index Funds

These funds invest in bellwether US indices such as S&P 500 and Nasdaq 100 tracking through passive management of the portfolio, aiming to mirror their performance.

3) Feeder Funds

These mutual funds essentially invest in units of foreign mutual funds instead of directly investing in equities. In other words, they operate as passively managed Fund of Funds (FoFs). Examples include:

• Bandhan US Equity FoF

• Edelweiss US Technology Equity FoF

• Edelweiss US Value Equity Offshore FoF

• Franklin India Feeder - Franklin U.S. Opportunities Fund

• Navi US Total Stock Market FoF

• SBI International Access - US Equity FoF

Are Indian Mutual Funds investing in US stocks worth your investment?

US stocks offer an opportunity to capitalise on the potential of global market leaders as well as companies that are the at forefront of innovations. With Rupee near its all-time low levels and likely further depreciation in the coming years, any potential outsized returns in the US can further compound returns on India mutual funds investing in US stocks

Thus, International Funds can be a great choice to benefit from diversification across geographies. But while investing in International Fund carries benefits, certain risks also exist, viz. country and/or region-specific macroeconomic risk, overvaluation of stocks, geopolitical risk, trade barriers, regulation risk, and currency risk.

Any changes in government regulations and policies relating to companies, industries, investments, and so on, may make the investments unattractive. Bear in mind, geopolitical tensions can also affect the fund's performance.

Moreover, international funds have exposure to foreign currency assets, that means, fluctuations in the exchange rate can affect your returns positively or negatively. For example, if you have invested in a mutual fund focused on the US market, your returns may drop if Indian Rupee appreciates and US Dollar becomes weak.

Though there is a growing popularity for international funds, invest in them only if you have a well-diversified exposure to domestic equities. Ensure that you have a high risk appetite and have the ability to bear the volatility and risks associated with overseas investments. In addition, your investment horizon should be at least 5 years.

Ideally, avoid holding international funds as a part of your core portfolio. Instead, use it as a tactical satellite allocation to boost portfolio returns, limiting the overall exposure to 10-15% of your equity investment.

Remember that a healthy portfolio is the one that takes calculated exposure across different asset classes, so that if one asset class fails to generate lucrative returns, other asset classes can protect your portfolio from financial loss.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.