I am looking to invest in low cost index funds. Can anyone guide me on how I can invest in index funds?Asked
When you decide to invest in index funds, you are essentially outsourcing the capital allocation job to the individual or committee determining the index methodology, rather than to the fund manager. Thus, if you decide to invest in S&P 500 Index fund, you are handing the job of managing your money to the handful of people at Standard and Poor's who determine what their index will comprise of. Though you will still own the portfolio of individual stocks, the stocks will be decided by the index.
In order to invest in index funds, you need to first select a leading mutual fund house that will charge lower fees and offer a wide range of index funds. Though most fund houses do charge lesser management fee for passively managed funds, the rates are competitive and selecting a good fund house is very important.
You can also buy index funds through your broker if you have an account with a stockbroker. However, they usually resist from it, because it means lesser commission for him.
Since it is your first time investing in index funds, it is advisable that you initially invest in only domestic index, though at a later stage you may combine it with investment in international index also.
However, in India, actively managed mutual funds have historically generated returns that have beaten the returns generated by the index. It is, therefore, advisable that you invest your money in actively managed mutual funds as it will enable you to benefit from the skills and expertise of the fund managers and earn superior returns rather than just simply mirror the markets. See below 2 graphs, the first one showing returns generated by HDFC Index Fund vis-a-vis Nifty 50 and the second one demonstrating returns generated by Rising Stars-Small Cap LongTerm vis-a-vis Nifty 50.
Hope this helps!
You can start investing in index mutual funds through any mutual fund distributor such as Groww. But before investing, you need to complete the mandatory KYC process.
It takes 4-5 working days approximately to complete the KYC process. KYC compliance is a mandate for investing in mutual funds. As part of this process, an investor needs to submit address proof, PAN Card, photo and bank account details. Then, you can purchase index funds or any other mutual funds easily from anywhere and anytime.
Index funds are mutual funds which are designed to track the returns of a whole market index such as Nifty, Sensex,etc . These funds purchase all the stocks in the same proportion as it is in a particular index.
Top performing index funds:
Index funds are a type of passive equity funds that replicate the portfolio of a particular index like BSE Sensex, NSE Nifty etc. These funds invest in all the stocks that comprise the index they are replicating also in the same ratio as in the index.
These funds help to diversify across sectors, industries, companies give the advantage of investing amounts as low as ₹500, which might not be possible by investing directly.
Investing in an index fund is as simple as investing in any other mutual fund. There are 2 primary ways of investing:
1. Lump sum
In lump sum the entire amount is invested into the fund at once at the NAV of that particular day.
In Systematic investment plan you invest a fixed amount in the fund every month on a particular date at the NAV of that particular date. Systematic plan helps to divide the burden of investment over a long period of time and also it helps in rupee cost cost averaging by investing the amount at different prices each month.
To read more about index funds please click here
To start investing in index funds please click here and select the fund of your choice
Some of the top performing index funds are
Investing in Index Mutual Funds is very similar to a normal Mutual Fund.
Following steps need to be followed:
· Sign up and make an account for new users or else login to your existing account
· Upload proper documents for identity proof, address proof, bank details
· Determine the duration of investment
· Determine the level of risk you are willing to take
· Choose the mutual fund accordingly from Groww website
· Choose the mode of investment i.e lumpsum or SIP
· Index Mutual Fund purchase will reflect in Groww account in 3-4 working days
Following index funds can be invested in:
Index funds are investment funds that are created to replicate the performance of market benchmark or index. Index funds behave like a market index tracker and invest in the same ratio as a particular index such as Nifty, Sensex, etc.
For example, Nifty 50 index has stocks of 50 companies of India from different sectors. By investing in Nifty 50 index funds, you are passively investing in those 50 companies.
Investing in Index mutual funds is similar to investing in any other mutual fund. What is important is the investor's rationale and belief for investing in a particular index fund.
Investment in an index fund can either be made via SIP or lump-sum. With a minimum SIP amount as low as ₹500, it ensures that investor gets the exposure of a particular index at a low cost. Based on the risk- return payoff and belief regarding investment in a particular index, various equity index funds can be looked up here.
Also, investor may better understand - how to invest in mutual fund here.