People work hard to earn money, but the motto is to not work continuously for the rest of their lives. Earlier, people used to invest their money in safer options such as FDs or PPFs that helped their hard-earned money to grow by itself. They were content with the lesser returns from an FD or PPF. But with the changing times, people started to plan their retirement as soon as they reached their early 30s. So their investment ideas shifted to a high-risk high return, such as a mutual fund. But ever since the pandemic, people have been hesitant to invest in such high-risk funds because of the sudden fall in the market. Index funds are some of the best options for those seeking higher returns than an FD or PPF and lesser risk than an actively-managed mutual fund.
The working methodology of Index funds:
An index is the performance indicator of a section of the stock market. Indices such as the Nifty, Nifty midcap, and Sensex represent the performance of stocks that are listed in that particular index. Top index funds in India are a form of mutual fund that invests in equities that forms an index of the stock market. Its performance will be in tandem with its parent index, i.e., the index it follows.
An index fund is also called a passive management fund as it follows the benchmark index, so there is no work for the fund manager unless there is a change in the index’s composition. The ultimate goal of the index fund is to mimic the performance of the index that it follows and generate a return close to it. Why not exact returns because there can be minor tracking errors.
What are the benefits of investing in index mutual funds?
One should invest in index mutual funds or index funds for several reasons.
- 1. Low Expense Ratio:
The best index funds have a minimal expense ratio because there is no requirement for the selection of stocks as the index fund reciprocates the activities of the parent index. As a matter of fact, the necessity for an analysis team is nullified; hence, the spending on research is also cut down.
- Minimum Influence of Fund Managers:
The fund manager’s workload is the least in the index funds because they don’t have to decide which stocks to invest in since the fund merely tracks the movement of the specific index. Hence the fund’s performance is void of the thoughts of the fund manager is good for the investors who expect a moderate risk.
- Diversification of portfolio:
The foremost goal of portfolio diversification is so that investors may avoid placing all their funds in one instrument because every instrument works in its own way according to the market conditions.
- Benefits on tax:
Rebalancing the index funds is done occasionally, thus making it a passively managed fund. It implies that the fund manager trades fewer times in a year than other fund schemes. Hence the number of times the yearly gains disbursement from the invested amount is less to the index fund India investors.
Best index funds 2022:
1.Nippon India Index Fund – Sensex Plan:
This plan copies the Sensex to replicate the performance of the Sensex for generating similar returns with marginal tracking errors.
- It is an index fund with a moderately high risk
- A CAGR/year of 8.4 % since its inception in 2010
- In 2021, it gave a return of 22.1%
- An investment of Rs.10000 in May 2017 was Rs.18216 in May 2022.
- Navi Nifty 50 Index Fund:
The main goal of this top index fund is to give returns that are on par with the performance of the index – Nifty. It is done by buying stocks that make up the index, with the least possible tracking errors.
- An index fund with a very high risk
- CAGR/year has been nil since its inception was in 2021
- Its NFO came on July 3rd, 2021, and closed on July 12, 2021.
- An open-end scheme.
- ICICI Prudential Nifty Index Fund:
It mimics the performance of the S&P CNX Nifty index by investing in stocks of companies with the same weightage as the benchmark index. It has minimal room for tracking errors.
- An index fund with a moderately high risk
- A CAGR/year of 14.3% since its inception in 2002
- In 2021, it gave a return of 24.9%
- An investment of Rs.10000 in May 2017 was Rs.17664 in May 2022.
- Franklin India Index Fund Nifty Plan:
According to this scheme plan, companies whose stocks are in the Nifty are bought in similar proportion to generate similar returns to that of the Nifty 50. There is a possibility of tracking errors.
- An index fund with a moderately high risk
- A CAGR/year of 12.1% since its inception in 2000
- In 2021, it gave a return of 24.3%
- An investment of Rs.10000 in May 2017 was Rs.17314 in May 2022.
- SBI Nifty Index Fund:
The agenda of the scheme is to reciprocate the performance of nifty 50 for similar returns keeping the tracking errors small as possible by buying shares that composes the benchmark index in the same proportion.
- An index fund with a moderately high risk
- A CAGR/year of 13.7% since its inception in 2002
- In 2021, it gave a return of 24.7%
- An investment of Rs.10000 in May 2017 was Rs.17600 in May 2022.
How to Invest in Index Funds?
You can open an account with any reliable broker to invest in the top index funds. Carefully read all the details and select the fund you want to invest in. Choose your investment amount according to the plan because some plans have a minimum investment amount below which you cannot invest.
Conclusion:
Market risks always play a part in any mutual fund, including the index funds. So it is always better to make any investment decision after consulting your investment advisor. Compared to other mutual funds, the index funds in India are less risky. You can either invest in lumpsum or through SIPs based on your requirements or fund availability.
