When it involves investing, there are myriad methods wherein one can make investments. As a newbie within the investing journey, it will not be a simple process to discern what may very well be the optimum means of investing, particularly in the case of the fairness market.
Chintan Haria, Head Of Product Development and Strategy, ICICI Prudential AMC says, “While investing directly in stocks may look enticing, the rigour required in terms of research may be time-consuming and needs research expertise. In such a situation investing in index funds can be considered a stepping stone to the world of equity investing.”
What is an Index Fund?
Index funds are mutual funds that replicate a specific market index like saying the Nifty 50 or S&P BSE Sensex 30. The replication just isn’t solely when it comes to the businesses current within the index but in addition its weightage. This means an index fund will purchase all of the securities which might be current in an underlying index in the identical proportion because the underlying index.
For instance, Haria explains, “Let us consider an index fund that is based on the Nifty50 index. Such an index fund will buy all the Nifty50 stocks in the same weightage as that of the Nifty50 index. As and when the Nifty 50 is rebalanced, the index fund too will mimic the changes made.”
Given the passive nature of the index fund, there isn’t a energetic resolution made by the fund supervisor right here.
Options Available
Industry specialists say, as we speak there may be quite a lot of index funds provided primarily based on indices resembling Nifty 50, S&P BSE Sensex 30, Nifty Next 50, Midcap 150, Smallcap 250, Bank Index and worldwide choices resembling NASDAQ 100 to call just a few.
Things to Remember
1) By choosing an index fund, Haria factors out, “an investor need not worry about portfolio diversification. This is because when one invests in an index fund, automatically one achieves a degree of diversification as the investment will be spread across various stocks which are all part of the index.”
2) Since index funds intently replicate the index, “the returns generated by such a fund will be similar to that of its underlying index, subject to tracking error,” says Haria.
3) The price related to the index fund tends to be decrease. This is as a result of Haria provides, “index funds are not actively managed and the transaction costs associated are also minimal given the low portfolio churn.”
4) Similar to different mutual funds, buyers have the choice of day by day, weekly, fortnightly, month-to-month or quarterly SIP.
Haria concludes, “an index fund offers one of the easiest ways to take exposure to equity markets. Investors across the spectrum can consider having index fund as a part of their overall asset allocation.”
Source: www.financialexpress.com”