Take a bite of global growth through investing in NASDAQ 100 Index

Digital is the new normal. The coronavirus crisis has normalised digital transactions in the sense that a cashless economy is a reality now. The future belongs to cloud computing, artificial intelligence, machine learning, fintech platforms, e-commerce and driverless cars, etc.

While this may be a new reality, in order to make gains from these advancements, from an investment perspective, there are hardly any companies operating in these segments in the listed universe in India.

For several years we have been using iPhones, searching on Google or utilizing Microsoft tools. Furthermore, a reasonable part of our day is spent on WhatsApp, Facebook etc. While we may be constantly using all of these amazing products, we have never been able to own their stocks as none of these are listed in India.

This is where investing in global markets especially the NASDAQ-100 index gains prominence. Sitting in India, thanks to the domestic fund houses, a lay investor can gain access to these indices in a very cost-effective manner.

Before we go any further, let us understand why investing in the global market/indices can be beneficial.

Markets around the globe perform differently each year. For example, the Indian stock market gave 15.8 per cent returns in 2020 compared to a whopping 43.6 percent returns in the US market. Japanese and Chinese markets rallied 16 percent and 13 percent, respectively, while the markets in the UK and France shed 14 percent and 7 percent respectively. In 2018, when the Indian markets rallied 5 percent, the US markets were down 3 percent. Hence, by diversifying your investments across different markets, one can earn stable returns.

With the Dollar rising, the value of the Rupee has depreciated continuously over the decades. So, if you have goals that require you to spend in Dollars, it makes sense to have those goals linked to your international investment. This will ensure that along with capital appreciation on your investment, your gains too are protected against Rupee depreciation.

So, while investing in the world’s dominant market, one can not only expect decent returns from these big giants but rupee depreciation adds to the returns, generating alpha.

The US equity market accounts for 59 percent of the global market capitalisation. Consider this: The Nasdaq-100 index had a market capitalisation of $18,554 billion as of August 31, 2021, compared to $1,852 billion for Nifty50 TRI and $2,353 billion for Nifty100 TRI. Besides, the index has top companies from various sectors that have businesses across the world. To say that investing globally means investing in the US markets will be no exaggeration.

The Nasdaq-100 Index is one of the world’s preeminent large-cap growth indexes and is home to some of the most innovative companies globally. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. Not only does NASDAQ-100 gives you access to global leading companies that maintain dominant positions in the market, it has a relatively lower correlation with Indian equity indices. This means if domestic markets underperform, then the likelihood of Nasdaq-100 following suit is minimal. In turn, this helps to balance one’s overall portfolio returns.

In terms of performance, the NASDAQ-100 Index has grown ~ 4x times over the last two decades. With a market cap of $18 trillion, this index has outperformed the broad market in the US. It has delivered ~ 35 percent CAGR in the last 6 years. If you compare its returns with the Nifty50 and another popular index in the US such as the S&P 500, NASDAQ-100 index has returned 31.2 percent compared to 13.6 percent in Nifty and 23.3 percent in S&P 500.

For retail investors, getting exposure to the US market’s blue-chip companies becomes quite easy by investing in this index fund. The flexibility of investing through SIP, Lump sum and/or both is available. Unlike direct investing, there is no limitation/cap attached to investing in global markets through the index fund. It also becomes a tax-efficient route given the indexation benefit investors can claim post staying invested for more than 36 months.

There are a couple of domestic mutual funds that have offerings that invest into Nasdaq-100, but the drawback is that they are all fund of funds (FoFs). This means that the domestic fund house will invest in either ETF or index fund of a global fund house. The expense ratio on FoFs includes the charges of domestic as well as global fund house. What makes ICICI Prudential NASDAQ 100 Index Fund different is it will invest directly in the Nasdaq index constituents, which makes it much cost-effective than FoFs.

So, if you are an investor looking to invest in new-age companies, then NASDAQ-100 index can be considered as the go-to option.