S&P 500 ETFs: SPY vs VOO vs IVV - Which one should Indians buy?

Three ETFs track the same 500 American companies. They hold the same stocks in the same proportions. They deliver virtually identical returns year after year. Yet Indian investors constantly debate which one deserves their hard-earned money. The SPY vs VOO vs IVV comparison matters because small differences in fees and fund structure compound into lakhs over a decade-long holding period. This guide breaks down every meaningful difference so you can pick the right fund for your portfolio and avoid paying more than you need to.

What these three ETFs actually do

SPY, VOO, and IVV each replicate the S&P 500 index. This index tracks roughly 503 of the largest US-listed companies by market capitalisation. Apple, Microsoft, NVIDIA, Amazon, and Alphabet sit at the top of all three funds. The top ten holdings make up roughly 35–38% of each portfolio. Every rupee you invest is allocated to the same American giants, regardless of which ticker you choose.

The S&P 500 has delivered annualised returns of roughly 12–14% in dollar terms over the past decade. For Indian investors, rupee depreciation has added another 3–4% annually in INR terms. That consistent performance explains why these three funds collectively manage over $1.5 trillion in assets.

So if the underlying basket is identical, what is the difference between SPY, VOO, and IVV? The answer lies in three areas: cost, fund structure, and trading mechanics.

Expense ratio: Where the real S&P 500 ETF difference lives

VOO and IVV each charge an annual expense ratio of just 0.03%. SPY charges 0.0945% — more than three times as much. On a ₹25 lakh portfolio held for ten years, that gap costs SPY investors roughly ₹16,000–₹20,000 extra in fees alone. That money compounds for VOO and IVV holders instead of going to the fund manager.

Here is the breakdown of the expense ratios for SPY, VOO, and IVV, in simple terms. For every ₹10 lakh invested, SPY takes ₹945 per year. VOO and IVV take just ₹300 each. The gap looks small in isolation. But fees eat into returns every single year, and the lost compounding adds up fast.

State Street, which manages SPY, has resisted pressure to cut its fee. The fund's legacy structure as a Unit Investment Trust makes changes legally complex. Meanwhile, Vanguard and BlackRock have locked in at 0.03%, making VOO and IVV the clear winners on cost for anyone planning to hold long-term.

Fund structure: Why it matters more than you think

SPY operates as a Unit Investment Trust — the oldest ETF structure in the U.S., dating back to 1993. This creates two key disadvantages. First, SPY cannot reinvest dividends received from its holdings between quarterly distribution dates. Cash sits idle, creating a small drag on returns. Second, SPY cannot lend its securities to short sellers, eliminating a revenue stream that offsets costs in competing funds.

VOO is structured as an open-end ETF share class of the massive Vanguard 500 Index Fund. This unique setup gives VOO a tax-efficiency edge that no other fund can fully replicate. Vanguard can purge low-cost-basis shares through mutual fund redemptions, reducing taxable capital gains distributions. The combined Vanguard 500 Index Fund manages over $1 trillion across all share classes, giving VOO enormous scale advantages.

IVV operates as a standard open-end ETF managed by BlackRock. Its key structural advantage is active securities lending. BlackRock is the world's largest securities lender, and the revenue generated from lending IVV's holdings partially offsets the 0.03% fee. This makes IVV's effective cost to investors potentially as low as 0.01–0.02%. Both VOO and IVV can also use in-kind creation and redemption mechanisms to manage capital gains distributions efficiently — something SPY's rigid UIT structure simply cannot do.

Tracking error: How closely they follow the index

Tracking error measures how much an ETF's returns deviate from its benchmark. Lower numbers mean the fund does a better job replicating the index. All three funds track the S&P 500 tightly, but there are slight differences.

VOO delivers the tightest tracking with an annualised error of roughly 0.02–0.04%. IVV follows closely at 0.02–0.05%. SPY trails slightly at 0.03–0.07%, primarily because of its dividend cash drag and inability to lend securities. Over any single year, these differences are almost invisible. Over a decade, they have contributed to a 0.5–0.7% cumulative performance gap relative to SPY's cheaper rivals.

For a detailed SPY vs VOO vs IVV comparison on tracking, all three earn high marks. But VOO and IVV edge ahead thanks to their modern fund structures.

Liquidity and trading volume: SPY dominates

If you need the best S&P 500 ETF that India traders can access for active strategies, SPY wins this category outright. SPY trades roughly 70–90 million shares daily with a bid-ask spread of just 0.002%. That is the tightest spread of any ETF on the planet.

VOO and IVV each trade around 4–6 million shares daily. Their spreads sit at roughly 0.003–0.005%. These numbers are still excellent by any standard — you will never struggle to buy or sell either fund at a fair price. But for options trading, hedging strategies, or moving large blocks quickly, SPY remains the instrument of choice.

The liquidity comparison of S&P ETFs reveals a clear pattern. SPY is built for traders. VOO and IVV are built for investors. Most Indians buying through LRS fall squarely in the investor camp, making SPY's liquidity premium irrelevant for their needs.

If you are curious how the S&P 500 versus Sensex returns over the past decade stack up, the numbers strongly favour U.S. large-cap exposure.

Dividend yield: Nearly identical

All three ETFs currently offer a trailing twelve-month dividend yield of roughly 1.2–1.4%. The small variations are due to the timing of distributions and minor differences in how each fund handles received dividends. None of these ETFs are income-focused products, so dividend yield should rank low on your decision criteria.

SPY distributes dividends quarterly but cannot reinvest them between payment dates. VOO and IVV can reinvest dividends immediately, which slightly improves their total return during rising markets. Over a full market cycle, this reinvestment advantage adds a few basis points of annual outperformance for VOO and IVV holders.

For Indian investors, note that the U.S. imposes a 25% withholding tax on dividends paid to Indian residents who file Form W-8BEN. Without this form, the withholding rate jumps to 30%. You can claim the withheld amount as a Foreign Tax Credit on your Indian tax return by filing Form 67.

Which broker offers which ETF to Indian investors

Indian residents access U.S. ETFs through the Liberalised Remittance Scheme, which allows up to $250,000 per person per financial year. Several platforms now make this process simple.

Winvesta offers commission-free trading on all three ETFs with fractional shares starting at $1. Its multi-currency account lets you hold USD without forced conversion, and KYC takes about 15 minutes using PAN and Aadhaar. Vested Finance provides a user-friendly mobile experience with curated portfolio options alongside individual stock access. INDmoney integrates U.S. stock access with Indian financial planning tools, making it easy to see your entire net worth in one place. Interactive Brokers offers the lowest forex conversion rates at roughly 0.002%, but has a steeper learning curve and is suited to experienced investors.

All major platforms support SPY, VOO, and IVV. Your choice of platform matters more for forex rates, remittance fees, and account features than for ETF availability.

Before you invest, read this detailed guide on tax implications for Indian residents investing in U.S. stocks to plan your cross-border tax strategy.

Tax rules Indian investors must know

The tax framework for US ETF investments changed significantly after Budget 2024. Long-term capital gains on foreign ETFs heldfor more than 24 months are now taxed at 12.5% without indexation. Short-term gains on holdings held for less than 24 months are taxed at your income tax slab rate. No further changes were introduced in the Union Budget 2025-26.

Banks collect TCS at 20% on LRS remittances exceeding ₹7 lakh per financial year. This is not an extra tax — you can claim it as a credit when filing your ITR or get a refund if it exceeds your liability.

One critical risk most Indians overlook is the U.S. estate tax. Non-resident aliens holding U.S. assets above $60,000 face estate tax rates up to 40%. There is no India-US estate tax treaty to provide relief. The exemption threshold is shockingly low compared to the $13.6 million exemption for U.S. citizens. If your U.S. portfolio exceeds a few lakhs, consider Ireland-domiciled alternatives such as CSPX or VUSA to avoid this exposure entirely. These UCITS ETFs track the same S&P 500 index but are not classified as US-situs property for estate tax purposes.

The side-by-side verdict

Which S&P 500 ETF should Indians actually pick?

For the vast majority of Indian investors, VOO or IVV at 0.03% is the right answer. Both cost one-third of SPY. Both track the index more accurately. Both reinvest dividends efficiently. Choosing between VOO and IVV is genuinely a coin toss — VOO has a slight edge in tax efficiency, while IVV's securities lending lowers its effective cost. You cannot go wrong with either one.

SPY only makes sense if you actively trade options or need to move large positions in seconds. For monthly SIP-style investments through LRS, paying triple the fees for liquidity you will never use is a costly mistake. The expense ratio SPY VOO IVV gap seems tiny in percentage terms, but money left in your portfolio compounds for decades.

The bigger decisions for Indian investors lie beyond which ticker to buy. Filing your W-8BEN to reduce dividend withholding from 30% to 25% matters more than the ETF choice. Understanding the 12.5% LTCG tax and planning your holding period are more important. Managing TCS cash flow and disclosing foreign assets in Schedule FA of your ITR are more important. The best S&P 500 ETF India investors can buy is whichever one they actually hold for the long term — and VOO or IVV make that hold slightly more rewarding.