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For investors who are not keen on betting high but seek equity exposure, a Nifty index fund can be an option worth considering. That said, before knowing how to invest in Nifty 50 index funds, it is vital for investors to understand the concept of this investment instrument in detail.

What is an 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.

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What is a Nifty 50 Index Fund?

A Nifty 50 index fund allocates its fund corpus to equity shares of the top 50 Indian companies in terms of market capitalisation.

Here are some of the portfolio constituents of Nifty 50 Index Funds as of October 18 2021:

  • Axis Bank Ltd.
  • Adani Ports and Special Economic Zone Ltd.
  • Asian Paints Ltd.
  • Bajaj Finserv Ltd.
  • Bajaj Finance Ltd.
  • Bharat Petroleum Corporation Ltd.

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.

What Makes Nifty Index Funds Special?

  • Diversification: 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. 
  • Low-cost investment: 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.
  • Flexibility: 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. 
  • No bias in investing: 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. 

How to Invest in Nifty 50 Index Funds?

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. 

  • Investing via an AMC’s website

Follow these steps to invest in a Nifty 50 index fund via a fund house’s website:

Step 1: Visit the official website of the AMC

Step 2: Fill in the required information

Step 3: Complete the e-KYC process by providing Aadhaar and PAN card details 

Upon successful verification of the details, you can start investing in the Nifty 50 index fund provided by the fund house.

  • Investing through mobile apps

Individuals can also invest in Nifty 50 index funds directly via mobile-based applications. Here’s how:

Step 1: Download the respective mobile app

Step 2: Register by providing the required contact information

Step 3: Complete the e-KYC procedure

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.

Things to Consider before Investing in a Nifty 50 Index Fund 

Individuals must make sure to take the following factors into account before investing in a Nifty 50 index fund: 

  • Investment objective: 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: 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.
  • Expense ratio: 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.

Your take

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.

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Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.