A Nifty Index Fund may be a viable option for investors who prefer to avoid high-risk wagers but still seek equity exposure. Having said that, it is essential for investors to fully comprehend the concept of this investment instrument before learning how to invest in Nifty 50 Index Fund.
Index Funds are Mutual Fund schemes that track a Stock Market Index, for example, the Nifty 50. In other words, an Index Fund invests in stocks that constitute a particular market index. Also, the weightage of the stocks is identical to the proportion of each stock that is a part of the index.
In case there’s a change in the proportion of any stock, Fund Managers make changes to ensure that the weightage of the portfolio constituents matches that of a particular index that it follows. Nifty 50 Index Fund is one such example of this seemingly popular investment instrument.
A Nifty 50 Index Fund allocates its fund corpus to equity shares of the Top 50 Indian Companies in terms of Market Capitalization.
Here are the top 5 companies of the portfolio constituents of Nifty 50 Index Funds as of June 22, 2022:
The Nifty 50 Index is viewed as a hypothetical portfolio that reflects the performance of the Indian stock market. Thus, the main purpose of Nifty 50 Index Funds is to generate similar returns as that of this Market Index.
Before we find out how to buy Nifty 50 Index Fund units, let’s look at some of the features of these Index Funds.
Index funds bring portfolio diversification to investors as it allocates their investment corpus to shares of companies belonging to different sectors. This also mitigates portfolio risk. In simple terms, investors’ portfolio value will not get severely impacted even if any specific sector underperforms.
Index funds are passively managed mutual fund schemes; fund managers are not actively involved in the investing decisions. As a result, they charge low management fees.
This, in turn, results in a lower expense ratio. As per recent regulations of the Securities and Exchange Board of India, fund houses can levy a maximum expense ratio of 1% on this fund type. Hence, the investment cost remains low, helping individuals to increase their earnings.
Individuals can invest a lump sum amount in index funds. Alternatively, they can choose to opt for a systematic investment plan (SIP).
The SIP route enables them to allocate a fixed sum to an index fund scheme at regular intervals (monthly, quarterly, etc.). One can start investing in Nifty index funds with an amount as low as Rs. 500 via a SIP.
In the case of index funds, fund managers follow an automated investment strategy. Precisely, fund managers have a defined mandate regarding which Stocks to buy or sell and in what proportion.
As a result, there’s no room for human bias when making investment decisions. Now that you understand what Nifty index funds are, here is how to buy them.
Investing in Nifty 50 Index Funds has become extremely convenient for individuals owing to the digital platforms. Prospective investors can invest in a Nifty 50 Index Fund online via a fund house’s official website, or they can allocate their funds through various online platforms/mobile apps.
So, how to invest in Nifty 50 Index Funds? Read on to know more:
Follow these steps to invest in a Nifty 50 Index Fund via a fund house’s website:
Individuals can also invest in Nifty 50 Index Funds directly via mobile-based applications. Here’s how:
Once the verification is successful, you can start investing in any of the top Nifty 50 Index Funds in India via different mobile apps.
Even though investing in a Nifty Index Fund is not a hassle anymore, one should be aware of certain factors before investing to make an informed decision.
Individuals must make sure to take the following factors into account before investing in a Nifty 50 Index Fund:
As mentioned earlier, the main objective of Index Funds is to match the performance of the market. Accordingly, they are not suitable for investors who are seeking market-beating returns.
Hence, investors must identify their financial goals before investing in a Nifty 50 Index Fund. Index Funds are an excellent option for investors whose objective is to match the performance of the market.
Tracking error refers to the difference between the returns generated by an Index Fund and that of the benchmark index.
Hence, this metric determines how well the Index Fund has managed to track the movements of the underlying benchmark. Therefore, the lower the tracking error, the better the Index Fund is.
The expense ratio is an annual charge that fund houses levy on investors to cover the expenses of running a particular fund. Such expenses include management fees, advertising costs, and more.
This yearly fee directly impacts the net annual returns earned by an investor. Hence, it is vital to consider this aspect before investing in index funds.
Now that you know how to invest in Nifty 50 Index Funds, make sure to compare the Top Index Funds in India that track the Nifty 50 before investing.
Disclaimer: The views expressed in this post are that of the author and not those of Groww.