A majority of stock investors are wary of the advantages of portfolio diversification. Index funds sometimes grab investors’ consideration as they are supposed to repeat the performance of their base indexes– such as the Sensex or the Nifty. All the stocks falling under these indices will get some exposure in their investment bucket. This hypothetically safeguards a performance similar to that of the index, which is being monitored. Another major advantage of this is its low expense ratio. We have listed all process to invest in Nifty Index Fund below.
There is no doubt in the point investing in equities is found to provide good returns over its counterparts. This is where investors love to prefer the Nifty Index Fund. If you are one of those who are planning to invest in this fund, it is important to have all its details beforehand. This would help you in getting the desired returns.
What do you mean by an Index Fund?
In simple terms, Index Funds refer to mutual fund programs that monitor a stock market index. One example is Nifty 50. Moreover, the gravity of the stocks remains similar to the percentage of each stock of whom it is an element.
However, in the case of any variation in the stock’s amount, fund managers make alterations to match the gravity of the portfolio with the corresponding index. Among various index funds, Nifty 50 is considered to be an extremely popular choice.
What is a Nifty 50 Index Fund?
A Nifty 50 Index Fund refers to a mutual fund in which most of its funds are assigned to the equity stocks of the top 50 companies that made up this index.
In other terms, this fund is largely seen as the indicator of the performance of the Indian stock exchange. According to the best share market app, its main task is to give similar returns that of the market index.
Why it is considered a great choice to invest in Nifty index funds?
It is not just a fad but there are many reasons that encourage investors to invest in these funds. Let’s get to know them below.
Affordable investment: Since these funds are indirectly managed by fund managers; there is less involvement of them in the investing choices. This is why these funds carry reasonable administration charges. This ultimately leads to a lower expense ratio. As per the latest guidelines revealed by the Securities and Exchange Board of India (SEBI), fund companies can charge an optimum expense ratio of 1% in this type of fund. Therefore, the investment cost stays reasonable, helping people to push their income.
Diversity: Another benefit of investing in index funds is portfolio diversification since the funds are allocated to multiple leading companies pertaining to diferent segments. This also lessens the related portfolio risk. In other words, investors’ portfolio worth will not get majorly influenced even if any particular domain fails to perform.
Tractability: The investors have an option to put in a lump sum amount in these types of funds. Otherwise, an option of a systematic investment plan (SIP) is also available. The SIP option allows investors to invest a fixed amount in an index fund scheme on a monthly or quarterly basis. Even, one can start a SIP with just Rs. 500 a month for investment in a Nifty Index Fund.
No investment partiality: When it comes to the management of index funds, fund managers are supposed to take an automated investment approach for fund allocation. Indeed, fund managers possess a clearly stated mandate with respect to the stocks they intend to buy or sell. This makes the chances of any kind of partiality almost zero even if you choose to work with one of the top 10 stock brokers in India.
How to invest in Nifty Index Funds directly?
When it comes to investing in Nifty Index funds, there are different options available to the investors like:
Through an AMC’s web portal
Consider the following steps to invest in a Nifty 50 index fund via an index fund company’s website:
Step 1: Visit the official portal of the AMC
Step 2: Fill in the asked details
Step 3: Finish the e-KYC process by furnishing Aadhaar and PAN card details
Once the submitted details are verified, you can directly invest in the Nifty 50 index fund provided via the fund house.
Investing through a mobile application
Today, it has become really convenient to invest in Nifty 50 index funds straight via a smartphone application.
Step 1: Download the particular mobile app
Step 2: Login by providing the needed contact details
Step 3: Complete the e-KYC process
Upon successful verification, you can choose to invest in any Nifty Index fund through various smartphone apps. Though making investments in a Nifty Index fund is not troublesome any longer, one should keep himself abreast of certain factors before investing to make a sound investment decision.
Things to consider while investing in a Nifty Index Fund
Though the rapid emergence of advanced technologies has made investing in Nifty Index funds quite simpler, one should be wary of certain things while doing investments in such equity funds like:
Investment goal: Keep in mind that that the primary goal of index funds is to contest the performance of the corresponding market index. Hence, these funds are not an ideal choice for investors who want unmatched returns on their investment. Hence, it is recommended for investors to seek clarity on their investment goals before putting money in a Nifty 50 index fund. Index funds are a perfect choice for investors whose goal is to chase the overall performance of the market index.
Tracking mistake: Tracking error technically means the difference between the returns accrued by an index fund and the ones that came from the benchmark index. Therefore, this metric regulates how perfectly the index fund looked after the arrangements of the fundamental benchmark. Thus, the minor the tracking fault, the more qualitative the index fund is.
Expense ratio: The expense ratio refers to a yearly expense that fund companies levy on investors to manage the expenditures of managing a specific index fund. These charges are inclusive of management charges, advertising expenses, and others. These yearly charges have a direct influence on the actual yearly returns gained by an investor. Therefore, it is essential to keep this aspect in mind before going with index funds.
The Conclusion
Though it has become a lot easier for investors to invest in index funds these days, one needs to be firm on his financial objective before taking any such decision. This is the only way to gain something out of index fund investments.
