S&P 500 ETFs vs individual stocks: what's better for Indian investors?

Here's the dilemma: You've saved ₹50,000 and want to start investing in US stocks. Should you buy one S&P 500 ETF and own 500 companies instantly? Or cherry-pick Apple, Microsoft, and Nvidia yourself?

Your cousin bought Tesla shares in 2020. He won't stop talking about his 800% returns. Your colleague invested in an S&P 500 ETF. She sleeps well and earns steady 15% annually.

Both strategies work. Both have zealous supporters. But which one fits your goals?

This isn't about which investment is "better" universally. It's about which one matches your situation—your time, knowledge, risk appetite, and investment amount.

Most Indian investors get this decision wrong. They either overcomplicate with 40 different stocks or blindly buy ETFs without understanding what they own. Let's fix that.

What is an S&P 500 ETF?

An S&P 500 ETF is a single fund that holds all 500 companies in the index. Buy one share, own a piece of Apple, Microsoft, Amazon, and 497 other companies.

Think of it like buying a thali meal. You get everything at once—dal, sabzi, roti, rice. You don't choose individual items.

Popular S&P 500 ETFs include:

• SPY (SPDR S&P 500 ETF Trust)
• VOO (Vanguard S&P 500 ETF)
• IVV (iShares Core S&P 500 ETF)

These ETFs trade on US stock exchanges. Indian investors can buy them through platforms like Winvesta.

What are individual stocks?

Individual stocks represent ownership in one company. Buy Apple stock, you own only Apple. Buy Tesla stock, you own only Tesla.

This is like ordering à la carte. You pick exactly what you want. But you need to make multiple choices.

The real difference between ETFs and stocks

Diversification

An S&P 500 ETF spreads your money across 500 companies. If one company crashes, it barely affects your portfolio.

Individual stocks put all eggs in one basket. If that company fails, you lose everything.

Risk levels

ETFs carry lower risk because of diversification. A bad quarter for Apple won't destroy your returns when you own 499 other companies.

Individual stocks carry higher risk. Netflix lost 75% of its value in 2022. Tesla dropped 65% in the same year. If these were your only holdings, you'd be devastated.

Potential returns

ETFs deliver market-average returns. The S&P 500 has returned roughly 10-12% annually over the long term.

Individual stocks can deliver explosive returns. Nvidia returned 239% in 2023. Amazon returned 81% in 2024. But they can also crash hard.

Time and effort

ETFs require zero research. You buy and hold. The fund manager handles rebalancing.

Individual stocks demand constant monitoring. You need to read earnings reports, track news, and understand business models.

Cost comparison for Indian investors

S&P 500 ETF costs:

• Expense ratio: 0.03% to 0.09% per year (SPY charges 0.09%, VOO charges 0.03%)
• No rebalancing costs
• Platform fees from Winvesta or your broker

Individual stock costs:

• No expense ratio
• Potential brokerage fees per trade
• Multiple trades are needed to build diversification
• Time cost of research

Let's run the numbers. Say you invest ₹10 lakh (roughly $12,000).

With an S&P 500 ETF, you pay ₹300 to ₹900 annually in expense ratios. Done.

With individual stocks, you might buy 10-15 companies. That's 10-15 separate trades. Even at ₹20 per trade, you're looking at rebalancing costs every time you adjust your portfolio.

Tax implications for Indian investors

Both ETFs and individual stocks face the same tax treatment in India:

• Long-term capital gains (held over 24 months): 12.5% tax
• Short-term capital gains: 20% tax
• TCS (Tax Collected at Source): 20% on amounts over ₹7 lakh per year under LRS

The tax advantage depends on your holding period, not whether you choose ETFs or stocks.

When ETFs make more sense

Choose S&P 500 ETFs if you:

• Are new to US stock investing
• Don't have time to research companies
• Want to invest ₹50,000 or less per month
• Prefer stability over high returns
• Sleep better with diversified holdings
• Want to set up SIPs and forget about them

Example: Rajesh from Pune invests ₹25,000 monthly in VOO through Winvesta. He doesn't track markets daily. His portfolio grows with the overall US economy. Simple.

When individual stocks make more sense

Choose individual stocks if you:

• Enjoy researching companies
• Have strong convictions about specific businesses
• Can handle 30-50% drops without panicking
• Want to beat market returns
• Have time to monitor holdings weekly
• Understand financial statements

Example: Priya from Bangalore works in tech. She understands cloud computing. She bought Microsoft, Amazon, and Google individually. Her tech knowledge gives her conviction to hold during drops.

The hybrid approach (recommended for most Indians)

You don't have to choose just one. Here's what works for many investors:

80% in S&P 500 ETF + 20% in individual stocks

This gives you:

• Stable base from the ETF
• Excitement from stock picking
• Downside protection
• Upside potential

Start with 100% ETF when you begin. Add individual stocks once you understand the market.

Another option: core-satellite strategy

Core (80%): S&P 500 ETF for broad exposure. Satellite (20%): 3-5 individual stocks you believe in

This balances safety with growth potential.

Real returns: ETF vs stocks

Let's compare 5-year returns ending December 2024:

S&P 500 ETF (VOO): 15.2% annualized Nvidia: 147% annualized Apple: 32% annualized Tesla: 38% annualized But also...Meta: -12% in 2022 alone, Netflix: -51% in 2022 alone

The ETF delivered steady gains. Individual stocks swung wildly. Some crushed the ETF. Others lagged badly.

Common mistakes Indian investors make

Mistake 1: Buying too many individual stocks. People buy 30-40 different stocks, thinking they're diversified. At that point, just buy the ETF.

Mistake 2: Panic selling ETFs during crashes. ETFs recover with the market. Selling during crashes locks in losses.

Mistake 3: Chasing last year's winners, Tesla did great in 2023. Nvidia crushed 2024. Past performance doesn't predict future returns.

Mistake 4: Not considering currency fluctuation. Returns in dollars may differ from returns in rupees due to USD-INR movements.

How to start investing (practical steps)

For S&P 500 ETFs:

1. Open a Winvesta account
2. Complete KYC and LRS declaration
3. Transfer funds to your US investing account
4. Search for VOO or SPY
5. Place a market order
6. Set up a monthly SIP if you want

For individual stocks:

1. Open a Winvesta account (same process)
2. Research companies using free tools:
   • Yahoo Finance for data
   • Company investor relations pages
   • Annual reports
3. Start with companies you understand
4. Buy 3-5 stocks maximum initially
5. Track quarterly earnings

Which option fits your profile?

You should choose ETFs if: Your goal is retirement savings, you have a full-time job unrelated to finance, you invest less than ₹50,000 monthly, and you want to sleep well at night.

You should choose individual stocks if: You work in specific industries (tech, pharma, etc.), you read financial news daily, you can dedicate 5-10 hours weekly to research, and you're comfortable with volatility.

Most Indian investors should start with S&P 500 ETFs. They're simpler, safer, and proven.

Individual stocks work if you have time and knowledge. But even pros struggle to beat the index consistently.

Warren Buffett himself recommends index funds for most people. He's won multiple bets against hedge fund managers who couldn't beat the S&P 500.

Start with an ETF. Learn the market. Add individual stocks later if you want.

Your investing journey doesn't have to be complicated. Pick the option that lets you sleep well and stick with it for 10+ years. That consistency matters more than choosing between ETFs and stocks.