An index fund is a sort of Mutual Fund that aims to replicate the indices like NIFTY50 or Sensex. Unlike index investment products that are actively managed to track a specific index, index funds are index tracking products they only mirror the constituents and their relative proportions in the index.
For instance, NIFTY50 index fund will invest in each of NIFTY50 stocks in the same ratio and thus lets investors invest in most of the market portfolio rather than focusing on a stock.
Why Choose Index Funds?
- Low Cost: Index funds have lower expense ratios as they don’t need active management, like other actively managed funds.
- Diversification: Through index investment, you are exposed to a large number of companies belonging to different industries meaning that there is a minimized possibility of suffering from losses arising from a particular firm.
- Long-Term Returns: Traditionally, indices such as the NIFTY50 have grown immensely over a long expanse of time making index funds ideal investments in the long run.
Top 7 Index Funds to Invest in 2024
| Fund Name | NAV (₹) | Fund Size (₹ Cr) | Expense Ratio (%) | 5-Year Return (%) | 10-Year Return (%) |
| Motilal Oswal Nifty Midcap 150 Index Fund – Regular-Growth | 35.9007 | 1949.15 | 1.00 | 27.82 | NA |
| Axis Nifty 100 Index Fund – Regular Plan – Growth | 21.3301 | 1750.56 | 0.92 | 16.45 | NA |
| Bandhan Nifty 50 Index Fund – Regular Plan-Growth | 52.0898 | 1629.27 | 0.60 | 16.66 | 12.53 |
| UTI Nifty 50 Index Fund – Regular Plan-Growth | 165.8475 | 20432.09 | 0.25 | 18.09 | 13.36 |
| SBI Nifty Index Fund – Regular Plan – Growth | 213.5812 | 8729.37 | 0.48 | 16.39 | 12.10 |
| ICICI Prudential Nifty 50 Index Fund – Regular Plan – Growth | 14.3939 | 492.29 | 0.82 | 16.63 | 12.26 |
| HDFC Index Fund – Nifty 50- Regular Plan – Growth | 229.0582 | 18914.92 | 0.36 | 16.64 | 12.54 |
How to Invest in Index Funds
1.Choose a Fund: After, determining the expense ratio, the benchmark index, and the overall financial objectives that you have you should be able to choose the right index fund.
2.Open an Account: Almost all the providers of mutual funds allow people to create the account online. Alternatively, you can open an account through the investment platforms or online investment marketplace like Fincover
3.Lump Sum or SIP: Choose if you wish to invest a single sum or using the Systematic Investment Plan more commonly known as SIP. SIPs actually provide a method of long term building wealth that is not tied to market fluctuations.
4.Monitor and Rebalance: Even index funds that need very little active management; however it is useful to take a look at your investment from time to time to make sure that it is going towards the direction you desire
Things to be considered before Investing in Index Funds
Before you start investing, consider the following factors to make an informed decision:
1.Expense Ratio: Expense ratio means the management fees for your funds. A lower expense ratio means a proportion of your overall returns is higher
2.Market Volatility: Index funds offer diversification but this does not necessarily protect them from market fluctuations. The other is in relation to the fund type—NIFTY50 is less risky than the NIFTY500 fund as the latter is a broader classification of the Indian market with mid-cap and small-cap companies included.
3.Investment Horizon: Index funds are appropriate investments for long-term investment, a period of five years and above, because of growth in the market and compounding. Short-term investors are less likely to invest in these funds because of market swings
4.Performance Consistency: Index funds do not aim for beating the market so when reviewing the performance of an index fund, looking at the ability to perform in the previous years and their ability to replicate the index is important.
5.Financial Goals: Ensure that the fund is in alignment with your financial goals. For more growth though, you can invest in a broader index that is NIFTY500. As for stability, the NIFTY50 and Sensex are perfect for that.
Benefits of investing in index funds
- Low-Cost Investment: Expense ratio is often considerably lower for index funds than for actively managed mutual funds.
- Diversification: These types of mutual funds give the investor a chance to diversify their stocks across top performing company of multiple sectors compared to sectoral funds
- Simplicity: This is an easy investment vehicle which is understandable by all and less risky compared to other funds that even investment experts prefer to invest a part of their funds
- Tax Efficiency: Even though returns from index funds are long-term returns, they attract Long Term Capital Gain tax which is usually lower than income tax payable on short term capital gains hence making index funds defacto choice for investors.
Conclusion
2024 was a conducive year for Index fund investors as the market saw various fluctuations and it went to an all-time high. By virtue of being inexpensive, having a diverse portfolio and being sufficiently transparent in the long-term objectives, index funds are best for long term investment opportunities. By picking on those particular funds with low expenses and small tracking error, investors are assured of steady flow of returns from the market without having to contend with numerous risks associated with individual securities. Index funds are ideal for long-term investment vehicles and ideally suited to SIL or SIP type of approach. Thus, acquiring differential knowledge on index funds can be ‘a good first step’ toward making a valuable investment to realize the financial prospects in future year, including 2024.
