A Nifty index fund can be used to build a diversified investment portfolio. Check out this post to know how you can directly invest in one such index fund.
Various mutual fund schemes are now available in India. The most popular options are equity, debt, ELSS, hybrid, and liquid funds. But if you’re looking for a scheme to add more diversity to your investment portfolio, a Nifty index fund can be an ideal choice.
But what is an index fund? How to invest in the Nifty 50 index fund? Let’s take a look-
What is a Nifty 50 Index Fund?
To understand what is Nifty50 index fund, you'll first have to know what an index fund is. Index funds are passive mutual funds that mimic stock market indices. A stock market index can be defined as a statistical measure that reflects market movements.
For instance, Nifty 50 is a leading stock market index in India. It is a diversified index representing the weighted average of the stocks of 50 companies with the largest market capitalization listed on the National Stock Exchange (NSE) across 12 sectors of the economy. For rebalancing purposes, the Nifty 50 index is reviewed semi-annually depending on 6-month data ending every January and July.
So, a Nifty fund will have a portfolio similar to the Nifty 50 index, including the same components in the same proportion. While other equity mutual funds try to beat their benchmarks, an index fund aims to deliver returns similar to the underlying index.
Why Invest in a Nifty 50 Index Fund?
Some of the most significant reasons to invest in the Nifty fund are as follows-
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Diversify your Portfolio
Investing in a Nifty 50 index fund is an effective way to build a diversified portfolio. As mentioned above, the Nifty 50 index comprises stocks from various industrial sectors. And as a Nifty 50 index fund mirrors the Nifty 50 index, it also invests in the same stocks as its underlying index. So, by investing in a single index fund, you can gain exposure to companies across industrial sectors.
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Easier to Track and Manage Risks
As these funds aim to mimic a particular index, the investors may find it easier to track its performance. A look at an index such as Nifty 50 can give investors a good idea of how their fund might be performing. This helps investors manage their risks better and adjust their protfolio accordingly if needed.
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Lower Expense Ratio
Index funds are passively managed as the scheme portfolio is only required to mimic the underlying index. Unlike actively managed funds, fund managers of index funds are not required to look for investment opportunities actively. As a result, the expense ratio of index funds is one of the lowest. SEBI has capped the expense ratio of index funds at 1%. However, you can easily find many funds charging a much lower expense ratio than that.
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Lesser Chances of Human Error
As fund managers only invest in stocks in the underlying index and adjust the portfolio when the index changes, they carry lesser chances of biases and human errors.
How to Directly Invest in the Nifty 50 Index Fund?
So, how to invest in a Nifty50 index fund directly? Follow these steps-
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Thoroughly compare top Nifty funds online to choose a scheme for your investment
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Go to your preferred AMC's (Asset Management Company's) website offering the selected scheme
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Search for the Nifty50 index fund you'd like to invest in
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Check details of the scheme, including the minimum investment amount
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You can either invest a lump sum amount or start a SIP
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Click on ‘Invest Now’ and fill in the required information
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Complete the e-KYC process
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Start investing
Alternatively, if you already have a trading and Demat account, some stockbrokers in India also offer access to mutual funds through their trading platforms. If your stockbroker offers this facility, you can also invest in your preferred Nifty fund through their platform. For offline investment, you can visit the nearest branch office of the AMC to complete the formalities offline.
Must Read - How to Invest in Mutual Funds?
Who Should Invest in Nifty Index Mutual Funds?
Nifty funds can be good for those who want to reduce the stock selection risk while incurring lower costs than actively managed schemes. New investors who want to build a diversified equity portfolio and potentially earn market-linked returns can also consider investing in Nifty index mutual funds.
Now that you know what index funds are, their benefits, and how to invest in Nifty 50 index funds directly, start comparing the top index funds to choose the best for your investment. You can also consult an investment advisor who can help you with the selection.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.