Introduction:
Today I’m going to discuss index funds, how they work, and share the top 5 index funds which is performing well in India. If you want to make a consistent corpus over a long period of time so index fund is a good option with moderate risk-effective return. if you don’t understand how to invest in equity mutual funds so index fund is a good choice for the long term.
What Is Index fund?
Index funds are a type of mutual fund or exchange-traded fund that is passively managed by a fund manager. This fund directly replicates the Nifty fund. For example, in the Nifty 50, the top 50 companies come, which means you will invest in 50 companies. The expense ratio is also very low in an index fund compared to any other mutual fund. The way Nifty 50 will perform the same way index fund will perform.
How does Index fund work?
If you want to invest in an index fund the fund manager of that index fund will invest your fund in stock in the same proportion in the index which they are tracking. For Example. TCS has a 12.4% stake in the nifty 50 fund so in the same proportion fund manager will invest in your fund and build a portfolio. When the weightage of stocks of TCS is 12.4% same way other companies of stock will be held in equal proportion to the index.
The fund manager of an index fund will also replicate the changes in his fund if the stock weghatge has increased or decreased in the index. New stock will added in the index fund when the old will be removed and fund manager will manage all these changes.
Index funds have a low expense ratio because fund managers manage it passively and it is the cheapest mutual fund.
Top 5 best index fund:
1- UTI Nifty 50 Index Fund: (Large Cap).
| AUM | Rs 4581 CR |
| Min Investment | Rs 500 |
| Return (P.A) | 16.95% |
| Expense Ratio | 0.35% |
2- DSP Nifty Next 50 Index Fund (Large cap).
| AUM | Rs 859 CR |
| Min Investment | Rs 105 |
| Return (P.A) | 16.95 % |
| Expense Ratio | 0.26 % |
3- Motilal Oswal Nifty Next 50 Index Fund (Large Cap)
| AUM | Rs 289 CR |
| Min Investment | Rs 500 |
| Return (P.A) | 16.88 % |
| Expense Ratio | 0.36 % |
4- ICICI Prudential Nifty Next 50 Index fund (Large Cap)
| AUM | Rs 6616 CR |
| Min Investment | Rs 500 |
| Return (P.A) | 16.79 % |
| Expense Ratio | 0.31 % |
5- Bandhan Nifty 50 Index fund (large cap).
| AUM | Rs 1666 CR |
| Min Investment | Rs 500 |
| Return (P.A) | 14.61 % |
| Expense Ratio | 0.01 % |
Conclusion:
I hope everyone understands this index fund, one thing I would like to share with you is that an index fund is a better investment option but it will work for a long period of time when you invest consistently. The best part of an index is there is less expense ratio in comparison to mutual funds or any other fund. And you d not required to choose stock and mutual funds, fund manager works for you. Above I have shared the top index fund so you can check it and take a decision accordingly.
Disclaimer: I’m not a financial advisor or research analyst so take this for educational purposes only and I’m not giving any buying and selling recommendations.