Index Nifty Fund

Are you looking to invest in the stock market but feel overwhelmed by the risks involved? You are not alone! Many investors seek equity exposure without diving headfirst into high-risk wagers. This is where Index Nifty Funds come into play, offering a balanced approach to investing in top-performing stocks while mitigating potential pitfalls. ...read more

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In today’s financial landscape, understanding the nuances of various investment strategies is essential. With two primary approaches — active and passive investing — it's crucial to know which aligns best with your financial goals. 

Active investing involves selecting individual stocks. Passive investing, on the other hand, simply tracks a benchmark index — this is done via Nifty Index Funds and other options. This approach not only reduces the unsystematic risk but also eases the burden of constant monitoring.

 

What is Nifty?
Nifty is a prominent stock market index created by the National Stock Exchange of India (NSE). Designed to present an overall view of the performance of the major listed companies, it encompasses various indices — the widely recognised NIFTY 50, NIFTY NEXT 50, and others.
Nifty has over 350 different indices that track the movement of stocks by looking at the average and market value of companies from various sectors. 
Nifty uses a method called free-float market capitalisation to calculate its indices. 

Types of Index Nifty Fund 

You can find various types of Nifty Index Funds to tailor your portfolio as per your risk tolerance and investment goals —

  1. Nifty 50 Index Fund: This fund passively mirrors the performance of the Nifty 50 Index, which tracks the top 50 large-cap companies in India.
     
  2. Nifty Next 50 Index Fund: Focused on the next 50 companies after the Nifty 50, this fund offers you a diversified equity portfolio that captures growth potential in established firms yet to enter the top tier.
     
  3. Nifty 200 Index Fund: Comprising companies from both the Nifty 100 and the Nifty Full Midcap 100 indices, this fund provides a comprehensive view of the Indian stock market by combining large-cap and mid-cap stocks.
     
  4. Nifty Smallcap 250 Index Fund: This fund tracks the performance of smaller companies within the Nifty 500 Index. They target high-growth potential in the small-cap segment while diversifying across various sectors.
     
  5. Nifty 500 Index Fund: Representing 500 companies based on full market capitalisation, this fund offers extensive market coverage. It encompasses large, mid, and small-cap stocks for balanced exposure.
     
  6. Nifty Auto Index Fund: Tracking the performance of the top 15 companies in the automobile sector, this fund is ideal for investors looking to capitalise on growth in India's automotive industry.
     
  7. Nifty Bank Index Fund: This fund focuses on the 12 leading banking stocks listed on the NSE. It provides targeted exposure to the financial sector, which plays a critical role in the economy.
     
  8. Nifty IT Index Fund: Comprising 10 key stocks from the information technology sector, this fund aims to capture the growth dynamics of one of India's most important industries.

What is Nifty 50 Index Fund?

An Index Nifty 50 Fund invests in the companies that make up the Nifty 50 Index, which includes the 50 largest companies in India by market capitalisation. As well-established leaders in their sectors, they are often referred to as blue-chip companies.

Nifty 50 companies are known for their strong profitability and track record of providing good returns to shareholders — both through regular dividends and capital appreciation. 

This fund closely mirrors the performance of the index, allowing you to gain exposure to the Indian stock market without the need to buy individual stocks. 

Best Nifty 50 Index Funds

Here is the list of best Nifty 50 Index Mutual Funds based on the expense ratio and annualised return of the past 3 years —

Nifty 50 Index Funds Name Expense Ratio (%) Annualised Return  (3 yrs)
UTI Nifty 50 Index Fund 0.18 12.68%
ICICI Prudential Nifty 50 Index Fund  0.35 12.44%
Nippon India Index Fund - Nifty 50 Plan - Growth 0.56 12.04%
Bandhan Nifty 50 Index Fund 0.1 12.75%
Tata Nifty 50 Index Fund 0.2 12.67%
DSP Nifty 50 Index Fund 0.18 12.66%
Aditya Birla Sun Life Nifty 50 Index Fund 0.2 12.60%
Kotak Nifty 50 Index Fund Direct - Growth 0.15 12.62%

Why Invest in Nifty Index Funds?

Nifty Index Funds offer several advantages that make them an attractive option for many investors —

Risk Optimisation These funds mirror the Nifty 50 Index, providing exposure to a diversified portfolio of large-cap stocks across various sectors. This diversification minimises your risk, as poor performance in one sector is less likely to significantly impact your overall investment.
Consistent Returns These funds have the potential for steady growth as they are built on the performance of established companies known for profitability. This stability can lead to more reliable returns over time.
Elimination of Bias Unlike actively managed funds, Index Nifty Funds rely on an objective approach. The stocks are selected based on their representation in the index, removing any type of bias from investment decisions.
Diversification By investing in a range of companies from different sectors, Nifty Index Funds help spread out risk while also letting you enjoy returns from different industries.
Low-Cost Investment Index Nifty Funds are passively managed, resulting in lower management fees and expense ratios — often capped at 1% as per regulations. This cost-effectiveness can enhance your overall returns.
Flexibility As an investor, you can choose to invest a lump sum or opt for a systematic investment plan (SIP

With an SIP, you can start investing with as little as INR 500 (approx. AED 22) at regular intervals.

How To Invest in a Nifty Index Fund?

To invest in an Index Nifty Fund, you have two straightforward routes. Let’s discuss each one in more detail — 

 

Via a Stockbroker 

Step 1: Open a Trading and Demat Account

Register for a trading and Demat account with a reputable stockbroker. 

Step 2: Complete the Application

To complete your KYC process, fill out the application form by providing personal and professional information. Upload the necessary documents, such as your —

  • PAN card
  • Aadhaar card
  • Proof of age, income, and address

Step 3: KYC Verification

Your stockbroker will process your application. You will then be notified of your successful KYC verification.

Step 4: Access Your Trading Platform

After the application process is completed, you’ll receive a user ID and password. Use these credentials to log into your stockbroker's trading platform.

Step 5: Select a Nifty Index Fund

Navigate to the fund section of the trading interface and choose a particular index fund for Nifty. 

Important: It’s advisable to research the fund’s performance and track record before making a selection. Review all scheme documentation thoroughly.

Step 6: Make Your Investment

Once you’ve selected a particular Index Nifty Fund, you have two options: start a Systematic Investment Plan (SIP) for regular investments or purchase units outright with a lump sum payment.

Note: These steps are mainly for purchasing ETFs. However, many platforms also have their portals to invest in Mutual Funds as well. 

 

Directly via AMCs 

These steps are primarily for investing in mutual funds directly —

Through an AMC’s Website

  1. Visit the official website of your favoured Asset Management Company (AMC).
  2. Provide the necessary details and complete the e-KYC process using your Aadhaar and PAN card details.
  3. Inform the Asset Management Company (AMC) whether you prefer a one-time purchase or a Systematic Investment Plan (SIP).
Top AMC Sites in India Include
  • Bajaj Finserv Mutual Fund
  • ITI Mutual Fund
  • ICICI Prudential Mutual Fund
  • Helios Mutual Fund
  • Axis Mutual Fund
  • Canara Robeco Mutual Fund
  • HDFC Mutual Fund

Through Mobile Apps

  1. Download the mobile app of an AMC.
  2. Register by providing your contact information
  3. Complete the e-KYC process.
  4. Once verification is successful, you can start investing in top Nifty 50 Index Funds via the app.

Taxation for Index Nifty Fund

Nifty Index Mutual Funds invest at least 95% of their money in the Nifty 50 Index. Due to this, they are considered equity-oriented mutual funds for tax purposes. This means they follow the same tax rules as other equity funds. 

So while you can certainly benefit from the growth potential of the overall stock market, you will also need to pay tax at the same rate.

Here are the new tax rules for index funds in 2024 —

Short-Term Capital Gains (STCG) Long-Term Capital Gains (LTCG)
  • If you sell your Nifty 50 index fund units within 12 months of purchase, the gains will be classified as short-term capital gains (STCG). These gains are taxed at a flat rate of 20%.
  • For units held longer than 12 months, the gains are classified as long-term capital gains (LTCG).
  • You can enjoy a tax exemption on LTCG of up to INR 1.25 lakh in a financial year. Any LTCG exceeding this threshold is taxed at 12.5%, without the benefit of indexation.

Frequently Asked Questions

What is the difference between Nifty 100 and Nifty 500?

Nifty 100 includes the top 100 companies, focusing on measuring the performance of large-cap companies. The Nifty 500 includes the top 500 companies in India, providing a broader view of the market. Nifty 100 effectively tracks the combined performance of the Nifty 50 and Nifty Next 50 indices.

Who should invest in Nifty index funds?

Nifty Index Funds are suitable for long-term investors looking for a low-cost way to invest in the stock market. If you prefer a hands-off approach, consider passive funds to mirror the index. If you want a fund manager to actively choose stocks, opt for an active fund, keeping in mind the higher expense ratios.

Is it good to invest in Nifty 50 Index Funds?

Yes, Nifty 50 Index Funds can be a good investment choice for those seeking to participate in the financial markets without the complexity of picking individual stocks. They provide balanced exposure to the top 50 companies, making them suitable for long-term investments. 

What are the advantages of investing in Nifty 50 Index Funds?

Nifty 50 Index Funds offer lower risk through diversification across 50 large-cap companies, requiring minimal active management. Additionally, they are accessible, allowing investors to gain exposure to major companies with a relatively small capital investment. 

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