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Great to see that you have now grown in your career and worked on incorporating Plan1 and Plan2 on saving for financial freedom. Let me introduce you to the 3rd stepping stone. The S&P 500 Index Fund !

During the time of writing down this article only one such fund was available – Motilal Oswal S&P 500 Index Fund Direct Growth .

The expense ratio on this is slightly steep ( ~0.5%) and have to watch-out for a cheaper alternative.

What is S&P 500 and why should we consider ?

It is often believed that once you hit a fair share of investing in your local market ( India , in our case ) , we should diversify into global markets. S&P 500 is similar to India’s version of Nifty 50 ( has 50 top companies of India ) while S&P 500 has 500 best companies of America. This 500 list includes companies like Apple , Microsoft , Amazon and other giants as well.

The common belief is that diversifying risk outside you local market is a good idea ( which I personally dont fully believe in 🙂 ) . But yeah , since American market owns the biggest chunk of equity in the world , a small portion of your wealth can go into it. Another risk that is seen is, S&P 500 owns 17%+ of money distribution in companies like Apple , Microsoft as seen in the below list.

What do I mean by this ? If you invest ₹100 in S&P500 . You would buy technology stocks shown in the top worth ₹17. On the other hand I like to believe the fact that I am owning part of Berkshire Hathaway ( really tiny level 🙂 ) !!

Here is a list of top 25 out of 500 companies

1. Apple Inc. (AAPL): 5.89%
2. Microsoft Corp. (MSFT): 5.63%
3. Amazon.com Inc. (AMZN): 4.07%
4. Facebook Inc. Class A (FB): 2.32%
5. Alphabet Inc. Class A (GOOGL): 2.03%
6. Alphabet Inc. Class C (GOOG): 1.98%
7. Tesla Inc. (TSLA): 1.45%
8. Berkshire Hathaway Inc. Class B (BRK.B): 1.44%
9. NVIDIA Corp. (NVDA): 1.38%
10. JPMorgan Chase & Co (JPM): 1.29%
11. Johnson & Johnson (JNJ): 1.19%
12. Visa Inc. Class A (V): 1.10%
13. UnitedHealth Group Inc. (UNH): 1.04%
14. Paypal Holdings Inc. (PYPL): 0.95%
15. Home Depot Inc. (HD): 0.93%
16. Procter & Gamble Co. (PG): 0.91%
17. Mastercard Inc. Class A (MA): 0.89%
18. Walt Disney Co. (DIS): 0.87%
19. Bank of America Corp. (BAC): 0.85%
20. Adobe Inc. (ADBE): 0.78%
21. Exxon Mobil Corp. (XOM): 0.73%
22. Comcast Corp. Class A (CMCSA): 0.71%
23. Netflix Inc. (NFLX): 0.65%
24. Verizon Communications Inc. (VZ): 0.64%
25. Intel Corp. (INTC): 0.63%

source: Investopedia

Weighting Formula for S&P 500

Company Weighting in S&P 500 =  Company market cap​ / Total of all market caps

Imagine that you have ₹62500 in corpus to invest instead of the ₹20,000 ( see 20k Rule of investing ) that you initially started with! After investing ₹12,500 in PPF , you are left with ₹ 50,000. Based on the previous post , you would have put 30K split between Nifty 50 and Nifty Next 50. The remaining ₹ 20k can go into S&P Index Fund.

Happy Investing !