All About Index Funds In India4 min read
Before we begin discussing index funds, you must know the meaning of an index. Without understanding this concept, it may be challenging to understand the 4 reasons why Nifty 50 Index Fund should be on your radar.
What is an Index?
An index is a statistical measure of the changes taking place in the securities market. Even if you’re new to the investing world, there’s a high chance you’ve come across two terms – Sensex and Nifty 50. These are the most well-known benchmark indices in this country.
Besides these two, there are other ones as well, such as Nifty 500. Nifty Bank, and BSE Midcap.
Now that you have an elementary understanding of what is a stock market index, it’s time we cover what an index fund is.
What is an Index fund?
An index fund is a mutual fund scheme that mimics a stock market index. These funds invest in the same securities as the constituents of a benchmark. Moreover, the allocation percentages are also identical.
It means that an index fund that tracks Nifty 50 will allocate its investment corpus to the same 50 stocks that constitute this index.
Now that we know what an Index is and what an Index fund is, it is now key to highlight the 4 reasons why Nifty 50 Index fund should be on your Radar.
4 Reasons why Nifty 50 Index Fund should be on Your Radar:
Here are 4 reasons to consider Nifty 50 Index Fund as your next investment:
1. Sizeable returns over the long term
Index funds like Nifty 50 Index Fund suit a long-term approach. An investment horizon of 10 years will likely average out the ups and downs of markets to provide generous returns.
Every investor tries to diversify his/her portfolio to minimise the risk associated with investments. Since Nifty 50 Index Fund tracks Nifty 50, it invests in stocks of constituent companies across various sectors, thereby fulfilling this objective.
3. High quality portfolio constituents
Stock indices like the Nifty 50 persistently update their components by replacing underperforming stocks with ones that are performing well. Accordingly, the fund manager buys and sells the same securities to keep the portfolio constituents identical. Hence, one assumes relatively lower risk when investing in this scheme.
4. Lower expense ratio for passive funds
Every mutual fund generally charges a certain percentage of your overall investment to run the business. This expense is termed as the TER (Total Expense Ratio), and you can find it in your relevant scheme information document or in any website that talks about the scheme. Data taken from the ICRA report for 31st May 2021 on the average TER of all domestic index funds shows that active funds generally charge 1% of your Investment to cover their costs. Index funds being passive funds generally have lower expense ratio compared to active mutual funds.
How can you explore the Nifty 50 Index fund?
If you’re interested in investing in the potential of India then one of the easiest way to do so is by exploring the Navi Nifty 50 Index fund through the Paytm Money
Navi is offering investors an opportunity to explore the top 50 companies of India at just 0.06% expense ratio as part of its latest fund offering. NAVI is one of the best low-cost solutions to invest in this index.
If you want to know more about this index fund then check out our YouTube channel: https://www.youtube.com/watch?v=zgAdEVz98hQ
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. Paytm Money Ltd SEBI Reg No. INA100009859 Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019. The Mutual Fund offering is non-Exchange-traded products and Paytm Money Ltd (PML) is acting as an agent for distributing the same. Please note all disputes with respect to the distribution activity, would not have access to the Exchange investor redressal forum or Arbitration mechanism. This information is purely based on publicly available data (Data Source: Scheme Information Document, https://www.sebi.gov.in, https://www.navimutualfund.com/ & AMFI) and in no way to be considered as advice or recommendation. The securities quoted are exemplary and are not recommendatory. Such representations are not indicative of future results.