What is an index fund? – Mutual Fund (Mutual Fund) has become very popular in today’s time in terms of investment , because it is one of the better ways of investment, if you also invest in mutual funds or want to do it, then you should consider Mutual Fund. There should be knowledge of Fund and Investment, so that you can get better returns in future, and achieve your goal. That’s why it is very important for you to know about all the types of mutual funds.
Mutual Fund is one of these types and it is a great type of earning long term profit . There is always a lot of risk in Equity Mutual Funds, hence investors always minimize the risk by investing their investments in different funds.
So dear reader, let us know today through this article what is index fund? Index Fund kya hota hai, and how to invest in index fund, (Index fund Meaning) Complete information about index fund. And if you want to learn about the stock market , then you can read the complete information on Stockpatrika.com –
What is an Index Fund ?
What is Index Fund? – Index fund is an equity mutual fund which invests in share market stocks and is made up of many stock indices like – Nifty 50 or Sensex 30, Bank nifty etc. An index of many different sectors. Consists of Best Stocks.
Index funds are passively managed by their fund managers. It simply means that the fund manager invests only in those stocks which are present in that index like Nifty 50 top 50 companies, so if a fund follows Nifty 50, then it invests only in Top 50 companies . Will do which is present in that index.
Now see, these index fund managers invest in stocks according to their index weightage. Now as Reliance has 10% weightage in Nifty then the fund manager will invest total 10% of the fund in the stock of Reliance Industry and similarly the fund manager does not make any significant changes in the investment. This means that the performance of such funds is similar to that of the index. That is, if the performance of the index is better then there is scope for better returns in that fund as well.
Index funds give returns similar to the index funds they track. Index funds do not attempt to beat an index or benchmark. And it helps the investor to manage the risk along with the balance portfolio.
Benefits of index funds ?
There are many benefits of Index Fund, let us know them one by one – Following are the benefits of Index Fund –
1, Expense Ratio remains low – The expense of investing in index funds is relatively low. Let us tell you that in other Directly Managed Mutual Funds, where the Asset Management Company charges fees of around 2%, the fees of Index Funds are very low i.e. between 0.5% to 1%.
2, Get the benefit of Diversification – Investors can diversify their portfolio with index funds. This reduces the chances of loss. If there is weakness in the stock of one company, then the loss is covered by the growth of the other stock. Apart from this, Tracking Error is less in Index Funds . And what happens is that the accuracy of imaging the index increases. In this way, it becomes easy to make an accurate estimate of the return.
3, Long Term Investment helps in better returns and wealth creation – There is a very old saying which you must have heard that every particle makes money, that is even ₹ 1000 cannot be made. Similarly, you The small investment we make turns into a huge amount in the future. You may be seeing more time but at the same time there is victory.
4, The qualification of the fund manager has nothing to do with it.
5, No need to review index funds from time to time.
What are the disadvantages of investing in Index Fund?
- Lack of Downside Protection :- Index fund gives Returns Replica (replica) of the index’s portfolio. Thus, if the stocks/ bonds in the index face headwinds, the fund manager will not have the freedom to change the exposure to those securities.
- No control over holdings:- Passive fund manager cannot create a portfolio of stocks which he feels may outperform the index components. The fund manager should maintain the same percentage weighting and have the same components at all times.
Mutual Fund or Index Fund
| Description | Active Mutual Fund | Index Fund |
| Expense ratio | Higher expenses than index funds | Index funds carry much lower expense ratios than actively managed funds. |
| Strategy | Create a portfolio of stocks after detailed research and application of judgment and skills. | Repeat or mirror the portfolio of the underlying index |
| Aims | Exit Benchmark and Build Highest Alpha | Match the returns of a benchmark or built-in index |
| Fund Type | Open -ended fund | Close-ended Fund |
Who should invest in index funds ?
Dear reader, if you want to invest and you do not have much knowledge about it and you do not have enough time to spend 7-8 hours for investment and research which stock is right and where to invest. ? So here let us tell you that there is no better option for you than Index Fund.
See, if you are investing in Index Funds and you get a return of 10% to 12% and for this you also pay 1% fee, then you do not have any loss in this, but in a few years, this amount will become your amount. You can fulfill your dreams comfortably. Although the risk is the same
Who are index funds right for?
Index funds are suitable for investors who want to invest in stocks with less risk. Index funds are better for investors who want to take calculated risks, even if they get low returns. But this is for long term and the returns are high.
How to invest in Index Fund? Index Fund in India
There is also an easy way to invest, you can invest through any broking platform and Angel One is very good and easy in this.
Or you can invest by visiting the official website of any Index Fund managing company like –
1) UTI Nifty Next 50 Index Fund Direct-Growth.
2) Axis Nifty Next 50 Index Fund Direct-Growth.
3) Motilal Oswal S&P BSE Low Volatility Index Fund Direct-Growth.
4) Nippon India Nifty SmallCap 250 Index Fund Direct-Growth.
5) IDFC Gilt 2028 Index Fund Direct-Growth.
Before investing, you have to keep two or three things in mind.
- return ,
- risk,
- Expense Ratio – While investing, it should be noted that the fund house is not charging more expense ratio from you.
- investment period,
- financial goals,
How much tax is to be paid in index funds?
Like all mutual funds, in index funds also you have to pay some tax on your profits to the government.
Like all mutual funds, in index funds too you have to pay some tax on your profits.
Earnings from equity funds attract Short Term Capital Gains (STCG) tax if the fund is sold in less than 12 months. It is levied up to 15% of the profit as per the current rules. If your investment is held for more than 12 months, then it will be considered as Long Term Capital Gains (LTCG) and 10% tax has to be paid on it, you have to pay only on capital gains above one lakh.
Some main points of index fund
To understand this, we have to understand Active Management and Passive Management, so let’s know
All Mutual Funds have a benchmark to gauge the performance of the fund – for example – an Equity Large Cap fund would have Night 50 as a benchmark, and a mid cap fund would have S&P BSE Midcap. The index will serve as the benchmark, etc.
Active Management means that the fund manager applies his own research and analysis to select securities. Active Fund Manager aims to beat the benchmark by a reasonable margin over the long run (Reasonable margin). The difference between the fund’s returns and the benchmark’s returns is known as alpha. The higher the alpha, the greater the skill of the fund manager.
Passive management means that the fund manager is responsible for mirroring or mimicking the components of an index. The fund manager does not apply his own research & analysis to select the constituents of the fund. A passive fund manager aims to replicate the returns of the benchmark and not outperform it, as is the case with an active manager. An index fund is a passively managed mutual fund.
FAQ – for What is Index Funds
what is index fund
Index funds are such mutual funds, where investment is made only in the stocks of a particular index. Index Funds: Index funds are a famous category of mutual funds in which high returns can be availed with low risk.
Which is the best index fund?
1, NIPPON INDIA INDEX FUND,
2, ICICI PRUDENTIAL NIFTY INDEX FUND,
3, HDFC INDEX FUND,
4, UTI NIFTY INDEX FUND,
How do I choose an index fund?
It is better to go with a broad index rather than selecting a few stocks in any segment.
What is Index fund in India
Index Fund is an Equity Mutual Fund that invests in Share Market Stock and is made up of several stock indices i.e. index like – Nifty 50 or Sensex 30 Bank nifty etc. An index of many different Sectors Best Stocks are made up of.
Conclusion – (What is Index Fund)
Index fund is an equity mutual fund which invests in share market stocks and is made up of many stock indices like – Nifty 50 or Sensex 30, Bank nifty etc. An index is the best of many different sectors. Consists of stocks. If you want to diversify your portfolio or want to take less risk than equity active funds, then you can definitely invest in index funds.
Hope you have got complete information about Index Fund in the article What is Index Fund, if you still have any question then you can comment, Stockpatrika Team will try to answer you as soon as possible. If you want to know about share market, then click here and read Share Market
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