What are Index Funds and how to invest thought them?

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Index Funds are ETF (Exchange Traded Fund) available on exchanges for passive investment. ETF could be on a basket of stocks, Index (like Nifty 50, Sensex, Bank Nifty and Bonds also).

What is a passive fund?

A passive fund is generally tracking a market index, or a specific market segment in order to determine what to invest in. Unlike with mutual funds or PMS, the fund manager does not decide what securities the fund should include or exclude.

How do Index Funds work?

Generally, Index funds replicate a basket of stocks, bonds, etc. For eg., Nifty 50 is an Index representing the top 50 companies listed on NSE. We have an ETF name NiftyBees which replicates Nifty 50. Therefore, your returns will be based on Nifty 50 companies.

Why use Index Fund?

Index funds are widely used as equity investment tool because they do not carry any exit loads as compared to mutual funds. They also listed on NSE/BSE, so you can buy or sell at any point in time during market hours. Last, they provide necessary diversification to portfolio at minimal cost.

Does the Index Fund is suited for me?

Index funds are suited for low risk and long term investors. Here low risk means they are less risky in the Equity category. But Index funds are risky in general compared to the fixed asset classes. Equity Index funds fluctuate based on global and macro factors.

Every investor should invest some money in the Index funds. Allocation of Index funds in the portfolio can depend on investment horizon and risk-taking capacity.

How to buy Index funds?

Index funds are traded on NSE just like other stocks. These could be bought and sold similarly like stocks. Once you have bought Index fund, it will be visible in your demat account just like a normal share/stock. You can sell ETF similarly like a share. The charges applicable on buying/selling of Etf are generally similar to stock.