Index Funds

When we discuss mutual funds, we come across the standard warning when, “mutual fund investments are subject to market risks.” However, such risks can be classified into two categories – systematic risks and unsystematic risks. Systematic risks arise because of macroeconomic changes in the domestic and global economy. Such changes can include economic growth, fiscal deficit, current account deficit, forex movements, etc.

Investment in Equities is the vehicle to participate in the long-term India growth story. Investment in Index fund is the simplest way to invest in Equities and can be core part of Equity allocation due to simplicity of investment and low cost. 

When one chooses to invest in equity markets, BSE Sensex and Nifty 50 are the two most familiar words for the investors. These are the name of two major stock indices in the country – BSE Sensex and Nifty 50. Since such indices are constructed using scientific methodologies and back-tested techniques, retail investors may prefer to have investment exposure in such indices. However, one cannot invest in such indices directly as they are not a security within themselves, but just an index of different securities. 

Market indices such as S&P BSE Sensex, NSE Nifty50, etc. are created by adopting scientific methodologies and back-tested techniques. As such, the investors may wish to invest in such indices to have smooth investment experience. However, since such indices are not tradable security in themselves, it is a difficult proposition for the investors to construct a similar investment portfolio, which replicates such an index. Index funds may be suitable to meet such investing needs.

When it comes to investing in mutual funds, investors have a wide range of options to invest, like equity funds, debt funds, hybrid funds, solution-oriented schemes, etc. Even within the universe of equity funds, SEBI allows the mutual funds to offer schemes under different categories like large-cap funds, ELSS, small-cap funds, value funds, etc. 

Index funds are a type of funds, which aim to replicate a particular index. The fund manager does not have any individual discretion to make changes in the portfolio changes, and the portfolio can be changed only to align it with the changes in the underlying index. 

Some investors' first acquaintance with the equity markets may be through benchmark indices, such as NSE Nifty50 and BSE Sensex. Such indices are an indicator of the broader markets. The common myth, that equity investing is investing directly into such indices, needs to be demystified.

Nifty 200 Momentum 30 Index is an index constructed to track the performance of 30 high momentum stocks which are part of Nifty200 Index. It has been created and maintained by NSE Indices Ltd., a subsidiary of the National Stock Exchange of India Limited (NSE), with a base value of 1,000 on 1 April 2005. The index is reviewed and rebalanced on a semi-annual basis in June and December each year. 

What is Index Investing?

Index investing is a passive investment technique that attempts to generate returns similar to a underlying benchmark index. An Index investment vehicle, tracks a market index or a specific market segment, to construct a portfolio of underlying index.

Why not commemorate India's 75th Independence Day this 15th August by taking concrete steps towards attaining the financial freedom that you've always dreamt of? But what is financial freedom?