How To Invest In Index Funds In India?

Want to know How To Invest In Index Funds In India? Well, you have landed on the right article!

Investing is a tricky problem, especially in India today. However, the Coronavirus pandemic has left people worried about taking care of their money and lives. You are naturally keen to invest some money in the right manner such that it grows appreciably. 

Having a large of money lying in your bank’s savings account will not fetch you much interest. You may also have put a sizable sum away in fixed deposits, but that would yield a small sum as interest. The best investment in such traumatic times is the index fund. What is it, though?

You may not have heard of it before, as the term index funds are relatively unknown. Well, it suffices to learn that it is a type of mutual fund similar to making a series of investments in the form of indexes.

You do not have to check and manage it actively every day. On the contrary, your indexes would follow the performances of certain standard indexes on the stock market and grow accordingly.

You will thus be able to obtain success by tracking the best-known indexes on the stock market. Check markets such as the BSE Sensex, NSE Nifty 50, and S&P.

The index you use determines the allocation of your assets. The return on investment (ROI) will mimic the index on the stock market. At times, you may also find it mentioned as index-tracked or index-tied mutual funds OR index mutual funds India.

Working of Index Funds

Understanding how the index fund works is not too difficult. When you want to invest in this type of mutual fund by following Nifty closely, your portfolio will consist of 50 stocks distributed in the same proportion as Nifty.

The securities that you hold could be in the form of bonds and stocks. You will not have to take care and try a different approach to grow your portfolio every time. Instead, your securities will follow the Nifty closely and increase accordingly.

You can buy and sell stocks in the same way as the Nifty or BSE Sensex that you are keen to emulate. While your fund manager would handle this, they will not have to identify the right opportunities and select the right stocks. Instead, the action will be passive.  

You do not have to track the indexes actively. Simply check how the standard index you follow has been performing, and you will get identical results.

There is a flip side to consider, however. There may be a small gap between the performances of the fund and the index. It is the responsibility of the fund manager to try and decrease this gap as much as possible.

Should You Invest in Index Funds?

It is a personal choice that you have to make. You are sure to have your own goals vis-à-vis investments and want to stick to your financial plans. Well, then index funds can be just the option for you!

Remember that index funds give you an opportunity of getting a decent return without taking too many risks. You can take it easy, as you do not need to track the fund too often. It will follow the best index funds India in the stock market, i.e., Nifty or Sensex.

However, you can always decide on a more active fund if you want to see a dramatic improvement. You may find good results compared to actively managed funds during the first few months of investing.

Unfortunately, it will not last, and active management wins in the short term. Do refrain from investing in actively managed funds when you are not ready to take risks.

Index Funds: Considerations for an Investor

You cannot invest overnight, even when financial professionals may endorse it. It helps to consider a few facts before going ahead. Sure, mutual funds are always prone to market risk. But you can always hope to do well by contemplating the following points carefully:-

• Risks 
  Index funds are all about indexes, making them less prone to variations in equity. You may find this an excellent investment opportunity that ensures good returns amidst a varying and volatile market.
  
  Try switching to active funds when the market is down, however. Otherwise, you tend to lose out. It is advisable to opt for an even mix of index funds and active funds within the portfolio to avoid losing value.
  
  
• ROI
  The index fund will follow the trends of the standard index funds you track. Your fund will never outdo the benchmark’s performance that you have in mind.
  
  Moreover, you may be dismayed to find the performance less than the benchmark. It occurs due to tracking errors. Ensure to invest in an index fund with the least tracking errors.
  
  
• Investment Costs
  You can expect the expense ratio of an actively managed fund to be far greater than a passive one. Remember that your fund manager will not have a role to play when you invest in index funds that follow a benchmark such as the Nifty.
  
  The low expense ratio is definite to generate a higher ROI.
  
  
• Investment Time
  Index funds are most suitable for people hoping for long-term investments. It is common to find that the fund goes through ups and downs during the initial years. However, it will remain stable when the investment remains intact for seven years or more.
  
  The returns generated in the long term may vary between 10% to 12%. Therefore, it is vital to have the patience to stick to the fund for seven years or more to perform to its full potential.
  
  
• Financial Objectives
  Mutual funds based on indexes can generate wealth without active planning or participation. It is thus ideal for creating a retirement fund or having surplus wealth to pursue other interests in life.
  

How To Invest In Index Funds In India?

You do not have to actively contact a broker or fund manager while trying to invest in index funds. Feel free to do it from the comfort of your home by doing it online. Here is the process to know how to invest in index funds India:

• Sign up to create a mutual fund account by login to the website of your choice
• Enter all details, including the sum of investment as well as the period
• Complete the KYC formalities by uploading the required documents
• Check out the list of available funds and select the one you deem fit
• Set up standing instructions if you want to invest via SIP each month

You may also decide in favour of the offline process. You need to fill in the details in the hard copy of the form and submit it to the fund manager. Make the payment alongside and begin an exciting investment journey via index funds.

Conclusion

You can generate wealth without active participation. You can do it by investing in index fund India and following the performing market index. However, check out the dos and don’ts to ensure a high ROI.

I hope you liked our article on how to invest in index funds in India, if you have any comments or suggestions do share them in the comments below.