For a general everyday investor, investing periodically in an index fund is the best option for their long-term investing journey that can help them outperform most investment professionals.
Investment in an index fund is one of the best strategies for reducing risk due to market fluctuations.
Now you might be wondering what these index funds are, What is nifty index funds, should I invest in nifty index funds, and How to buy nifty 50 index funds.
We have some valuable information below that can help you clear up some issues.
What is Nifty index fund?
In simple words, the nifty index funds is like a mutual fund whose stock portfolio comprises companies’ stocks that feature in the Nifty index.
You invest in nifty index funds by investing in the stocks of the companies that comprise the Nifty index.
Unlike most other index funds, the Nifty index fund’s components match the components of the Nifty index exactly.
Irrespective of the market conditions, this fund follows the index’s performance.
Now because these funds give you such a broad exposure like if you invest in nifty 50 index fund, you get the exposure of 50 different companies belonging to different sectors.
Index funds offer a solid diversification to one fund and mitigate the sectoral risk because of this.
One of the most general questions a new investor asks is How to buy nifty 50 index fund and about its performance.
If we see the record, we can see that the nifty index has been on an upward trend for a very long period, making it very safe to invest in nifty 50 index fund.
What factors go into choosing the stocks for the nifty 50?
In order to be a part of NIFTY 50, one of the main requirements is to be listed on the National Stock Exchange (NSE).
Additionally, companies should be able to trade their shares on NSE’s Futures & Options segment so that investors can invest in nifty 50 index funds.
The top 50 large-cap companies are selected from the universe of large-cap companies listed on the NSE using their free-float market capitalisation.
A company’s free-float market cap is calculated by multiplying its stock price by the number of shares easily accessible in the market.
Moreover, to allow people to invest in nifty index funds, liquidity also plays a role.
It is important that stocks included in the NIFTY 50 index are easy to buy and sell, as well as have high trading volumes.
There are no fixed 50 companies in the NIFTY 50 index.
NIFTY 50s rebalancing removes stocks whose market value has fallen or whose listings have been suspended or delisted.
Stocks that were removed would then be replaced by emerging stocks whose market cap would have increased. This gives a fair opportunity to the investors willing to invest in nifty 50 index fund.
How to buy nifty 50 index fund?
Now there are two main ways to invest in nifty 50 index funds and to invest in nifty index fund of different sectors.
First is directly investing in Index Mutual Funds that track nifty 50 without opening any brokerage account.
The first method can be done via an asset management company website by completing the required process asked by them.
Now to invest in nifty index funds generally they ask the investors to complete e-KYC process by providing Aadhaar and PAN card details.
After completing the procedure the people can invest in nifty 50 index fund or any other fund which will be provided by the fund house.
on the other hand people can also invest in nifty index funds without opening a brokerage account through banks. Banks also acts as mutual fund agents.
The second option is to invest in nifty index funds by opening a brokerage account.
If you don’t have a Demat account, then visit the website of your favourite broker to open an account if you don’t have one already.
A stockbroker will begin processing your application for opening a trading and Demat account as soon as your KYC verification is successful.
Now the investor is eligible to invest in nifty 50 index fund. You can buy units of the fund with a single lump-sum payment or create a Systematic Investment Plan (SIP) once you’ve selected nifty index funds.
The question of How to buy a nifty 50 index fund can be explained by choosing one of the two methods mentioned above.
What are various kinds of nifty index funds?
When it comes to investor choice to invest in nifty index funds then apart from the option to invest in nifty 50 index fund investors have other options.
People can invest in nifty 100 index fund that aims to mimic Nifty 100 Index returns by investing in a basket of stocks, subject to tracking errors.
We have the option to choose from different sectors like nifty bank the index includes 12 stocks from the banking sector that are liquid and large capitalized.
We can also choose from funds with different stocks capitalization we have Nifty Midcap 150 Index Fund and several other small and large-cap nifty index funds.
Also Read: Why do companies list on Stock Exchange?
The top 5 Nifty Index funds of 2021 are:
How to decide which index funds to invest in?
Now that the investor knows What is nifty index funds, How to buy nifty 50 index fund, and what are various funds.
Now there are few factors which the investor needs to consider in order to decide which index funds to invest in are :
(I)- Investment cost: Expense ratio is one of the most crucial factor the lower the expense ratio will be the more returns the fund will generate.
(II)- Return potential – Generally, the index fund are not able to cope up with their underlying index performance. There is a difference between the index fund and the index, which we call tracking error.
An investor who wants to invest in nifty index funds needs to select a funds with low tracking error to generate more returns.
(III)- Financial Goals- Every investor should invest in nifty 50 index funds or any other fund but with a specific goal.
Index funds suit individuals with long-term financial goals like retirement planning, wealth creation or child education.
The index funds because of its broader scope tends to give positive but a slow growth which makes any expectation to meet any short-term goal very tough.
The whole article sums up the question such as What is nifty index funds, How to buy nifty 50 index funds and gives a clarity about the concept of different nifty index funds.
For an investor who wants to invest in nifty index funds, the nifty index funds is like a mutual fund whose stock portfolio comprises companies’ stocks that feature in the Nifty index.
For the investors who want to know how to invest in nifty 50 index funds directly here are basically two ways.
The first is without any demat account by getting in touch with any bank or asset management company by completing the required procedure mentioned above.
The second way is with the help of demat account after completing the verification procedure.
In the second method you can buy units of the fund with a single lump-sum payment or create a Systematic Investment Plan (SIP) once you’ve selected a nifty index funds.
Watching the historical returns, we can say that by consistently investing in any good index fund in the long term can help any investor to make great wealth.