This year there is a turmoil in the market, so index funds are in demand. Under this category, the number of folios is increasing continuously for the last 1 year.
Mutual Fund Investment: Talking about the last one year, the focus of investors has increased on index funds. For this reason most of the mutual fund houses like HDFC Mutual Fund, ICICI Pru, IDFC Mutual Fund, Axis Mutual Fund, ABSl and Nippon Life have also focused on index fund products. Most of the NFOs that have come in the past have been of this category. On the other hand, when there is a turmoil in the market this year, index funds are in demand. If we look at the data of Association of Mutual Funds in India, the number of folios in index funds has doubled from March 2021 to February 2020 to more than 23 lakhs. It was a little over 10 lakh till the end of March last year. After all, why is the demand for index funds increasing in the face of such uncertainty?
Why Index Funds Have Low Risk
AK Nigam, director, BPN Fincap, says that index funds are a better option for investors who do not want to take much risk in the market. Nivea costs less in index funds and is in the risk free category. However, it is not that there is no risk in it at all. Index funds invest in stocks that are included in the Nifty 50 or Sensex 30 or similar indices. The performance of such funds is similar to that of the index. These indices usually consist of established companies and they handle market volatility better than others.
What is index fund
Index mutual funds are called passive funds. These funds invest in the same securities as the index they track. And thus they are passively managed funds. Since the fund manager follows only the asset allocation pattern of the underlying index, there is no investment strategy followed by the fund. The only condition is that at least 95 per cent of the investment should be in securities.
Some Outstanding Index Funds
LIC MF Index
1, 3 and 5 year returns: 11.13%, 14.51%, 13.86%
Nippon India Index Fund
1, 3 and 5 year returns: 11.97%, 15.32%, 14.88%
ICICI Prudential Nifty Index Fund
1, 3 and 5 year returns: 13.20%, 15.14%, 14.03%
UTI Nifty Index Fund
1, 3 and 5 year returns: 13.23%, 15.14%, 14.25%
SBI Nifty Index Fund
1, 3 and 5 year returns: 13.13%, 14.83%, 13.99%
IDBI Nifty Index Fund
1, 3 and 5 year returns: 12.48%, 14.86%, 13.88%
Features of Index Funds
The expense ratio is low in index funds. That is, the cost of investment comes down. As per SEBI’s Mutual Fund Regulations Regulation, the expense ratio for an index fund cannot exceed 1 per cent of the daily net assets.
Instead of investing money in a single stock, it is invested in the stocks included in the index. Hence your portfolio gets diversified with quality stocks. ,
Index funds have the potential to generate stable returns and not too much in a short span of time like midcaps or smallcaps. But here the risk is less as compared to others.
Index funds have less liquidity as compared to regular funds. But they are open-ended schemes, which means you can always sell your mutual fund units back to the mutual fund and redeem your money at any time.
(Disclaimer: In mutual funds Investment Is also subject to market risk. The information provided here is not the personal view of The Financial Express. Consult experts at your level before investing.
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