How To Buy Nifty Index Fund
In this article, we will not only discuss How to Buy Nifty Index Funds but you will also get to know some financial terms that I have mentioned below. These points will give you an overview of nifty index funds and how it operates.
- What is nifty index
- Types of nifty index funds
- Who should buy nifty index funds
- Why you should buy nifty index funds
- Nifty index return over the years
- How to buy nifty index fund
What is Nifty Index?
Before we go to learn how to buy nifty index funds we should learn this, word Nifty is derived from National and Fifty as Nifty consists of 50 stocks that are traded on India stock exchange.
Primarily nifty was a benchmark index equity and it was introduced in the year 1996 by NSE of India. The word Nifty is a short form of NSE Fifty, it is the index of National Stock Exchange of India. National Stock Exchange is a leading stock exchange of the country.
Nifty is one of the most actively traded exchanges in India and consist of 50 stocks of the economy from 14 different sectors of the economy.
14 Different sectors are:
- Nifty Bank
- Nifty Reality
- Nifty IT
- Nifty Infra
- Nifty Energy
- Nifty FMCG
- Nifty MNC
- Nifty Pharma
- Nifty PSE
- Nifty PSU Bank
- Nifty Service Sector
- Nifty Media
- Nifty Metal
- Nifty Auto
Best Investment Options
What is a nifty index fund?
As the name suggests, Index funds mean investment in an index. This fund purchase all the stocks listed in Nifty in the same ratio as in an individual index. That means the portfolio will perform parallel to the index.
As we know, the fund manager of big fund houses in an active fund tries to earn extra returns compare to the benchmark index through actively picking of stock. However, so many abroad researches have proven that it is almost impossible to beat the index return over the longer period.
Types of nifty index funds:
- SENSEX Index Funds: This index fund follows the BSE SENSEX as its benchmark and invests only in 30 listed companies in SENSEX.
- NIFTY Index Funds: These kinds of index funds follow NIFTY 50 as its benchmark and invest in only these 50 companies.
- NIFTY Junior Index Funds: These funds track nifty next 50 as benchmark index and invest in only these 50 junior companies.
Who should buy nifty index funds?
The investment decision in any kind of funds depends upon the risk preferences of investors. Buying index funds are a good option for investors those are risk-averse and want to earn a better return than the market or fixed deposit.
If you buy nifty index funds then it does not require extensive tracking on a daily basis. Look at this example, if you are willing to participate in the equity market but do not willing to take risks associated with actively-managed funds, then you should buy a nifty index fund. Buying nifty index funds will give you returns matching the upside that the particular index sees.
Although, if you want to earn better returns than the market, then you can choose actively managed funds but in reality actively manage funds also do not beat the index funds in long run, so the better way is that you should buy nifty index funds.
Why you should buy nifty index funds?
There are three different reasons because of that you should buy index funds:
- Diversification: An index fund is a combination of different stocks and securities. Index funds offer diversification to its investors that’s main motive is asset allocation. This ensures that an investor should not have all eggs in a single basket.
- Less Expense Ratio: Index funds have lower expense ratio compare to other funds or mutual funds. In this category, fund managers do not need a separate team for stock selection or company research. Therefore, the index funds have lower expense ratio.
- Less Managerial Influence: Though the fund directly follows the movement of the index, managers do not need to select the stock to invest in. So, the manager cannot influence the fund by his/her thought.
Nifty index return over the years:
How to buy nifty index fund?
Now it is easier to buy index funds than ever before – without any hectic process. You just need to do some online formalities and your account will be ready for investment within an hour. There is two way of investing in Index Fund:
- ETF Format: To buy nifty index fund you should have a Demat Account that can be open with any online brokerage house like Zerodha, Sherkhan, Upstox and there are so many online brokers are available in the market but I would recommend you to open your Demat account with Zerodha.
- I have personally used this and their user interface is really awesome. By you are free to open your Demat account with any broker as per your wish.
After creating your online Demat account you will be provided your online user ID and password, now you can log in to your account. The next step will be to find the ETF in which you want to invest. Select your favourite ETF and fill the quantity then swipe the buy button.
Step 1: After installing your app sign in with your login ID
Step 2: After sign in this interfacce will come on your moblie / Destop. search your index funds in search bar
Step 3: Search result will be shown on your display, like on your index fund like i have selected SBI ETF
Step 4: Fill the quantity that you want to buy and swipe the buy button, your order will be confirmed.
Currently, there are 17 Index Fund are available in India from where investors can buy Index funds, those are
Franklin India Index Fund – NSE Nifty Plan
HDFC Index Fund – Nifty Plan
ICICI Prudential Nifty Next 50 Index Fund
IDBI Nifty Index Fund
IDBI Nifty Junior Index Fund
LIC MF Index Fund – Nifty
Principal Index Fund – Midcap
Principal Index Fund – Nifty
IDFC Nifty Fund
Reliance Index Fund – Nifty Plan
SBI Nifty Index Fund
Tata Index Fund – Nifty Plan
Taurus Nifty Index Fund
UTI Nifty Fund
- Normal Format: This much easier. To invest in this way what you need is just a bank account but those banks are offering ETF fund just go to them and ask you want to buy a nifty index fund. They will ask you to follow two or three steps and your account will be open within 24 hours.
Those banks from there you can buy nifty index funds are the following:
State bank of India
KOTAK MAHINDRA BANK
PUNJAB NATIONAL BANK
Buying a nifty index fund is the better option than investing in any equities or any mutual funds. There are lots of advertisement out there of mutual funds and in every ad, you will see ” Mutual Funds Sahi hai” but nobody talks about the nifty index funds, the reason is all the ads are run by the big fund houses. So, they can not say that there is catch in mutual fund invest rather than a nifty index fund, the catch is the expense ratio.
Mutual funds charges around 2% of your total asset on year basis but nifty index funds expense ratio is only around 0.02%. If you will lose this 2% on a yearly basis then it will create a big gap in your total return in the long run. So, the final word from my side is to go with Nifty Index Funds.