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Index Funds Invest in the Top Securities with Index
- Total Funds 154
- Average annual returns 21.66%
Index Funds
Invest in the Top Securities with Index. More
- Total Funds : 154
- Average annual returns 21.66%
What is Index Fund Mutual Fund?
Index funds or the passive funds are the funds that try to replicate the performance of a particular benchmark. These open-ended schemes invest up to a maximum of 95% of the total assets in the instruments of a specific benchmark. Index Funds are best for those investors who don’t want to take much risk and simply seek to earn as per the chosen benchmark, keeping in mind the earlier performance.
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Index mutual funds facilitating investment in particular equity Indices
Ever thought of the indices prevailing in the equity market? S&P 500 (Standard & Poor’s Index 500), BSE 30 Index, Sensex, Nifty, etc. The Index funds aim to replicate the profit of the various indices. These are the most common indices we hear in our daily lives. This means that the Index Fund invests in exactly the same proportion of the equity shares as they are listed in the indices. The Index funds do not alter the order and proportion of the shares and thus earns the profit accordingly.There is a different proportion of each share in the indices is different. For example, if Reliance is sharing 10% in the index, then Index Fund will also invest only 10% of the total amount in Reliance Industries.
Indexing methods:
There are some indexing methods followed in order to optimize the investments of the investors.
- Traditional Indexing: Index mutual funds of this category follow a fundamental and simple rule of indexing, i.e., replicate the indices exactly and in the same proportion. Alteration in the Index Fund takes place only when any company enters or exits the indices. Other than that, the traditional Index mutual funds give consistent and moderate results throughout.
- Synthetic Indexing: The index funds lying under this category are a combination of indexed equity and plus an investment in low-risk bonds. The Index funds here provide a greater return on one hand and secure investments on the other. Synthetic indexing can provide you with better tax-benefits as compared to traditional investing.
- Enhanced Indexing: This method of indexing in Index mutual funds online facilitate the alterations in the funds by using different methods like including customized indexes (instead of relying on commercial indexes), trading strategies, exclusion rules, and timing strategies, etc. Using these techniques, the Index mutual fund enhances the use of active management. By active management, one means actively altering the funds and not simply reciprocating the indices. To make significant changes in the investment strategies and to earn maximum profit, is the prime motto of the Index funds falling under this category.
Benefits of having invested in Index Mutual Funds
There can be following benefits of investing through the index mutual funds:
- Manageable: The index funds are very simple and easy to manage. Once, you have to understand that in which index you aim to invest. The equity funds in each index vary depending on their size, capital invested, good traded, etc. So, if you know in which mutual fund schemes to invest and how much then, three-fourth of your task is completed. The one-fourth remaining is to invest the money and track its performance regularly.
- Subservient turnover: In Index funds, the turnover is very less or negligible. Turnover means buying and selling of securities. As in the Index funds, the investment is done based on the proportion in which the companies have been listed on the indices. There are chances of changes in the Index funds only when any company enters or exits the indices in case of simple indexing and enhancing methods used in case of enhanced indexing.
- Style drift is zeroed: Unlike other funds, Index funds do not allow style-drift. Style drift is the change in the ratio of investment in diversified equity fund in order to maximize profit. This means increasing the investment in the equities offering greater returns, which will increase the risk factor manifolds. But, such changes are not possible in Index mutual funds thus, putting a check on style drift.
- Minimum-risk involved: As the Index funds are properly diversified, the investment is no doubt secure. The investment is not centered around one or two equity companies and thus, facilitating diversification of the funds and at the same time security.
Invest in various Index funds like IDBI Nifty Junior Index Fund (G), HDFC Index Fund Sensex Plan, ICICI Prudential Index Fund (G), etc. through My SIP Online and make capital gains more secure.
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Frequently Asked Questions
Who should invest in Index Fund Mutual Funds?
Index Fund funds are suitable for the investors who can digest high risk in search for higher returns. Moreover, these funds are not suitable for the investors who are stepping in the finance market with a short term investment perspective as they might end up delivering negative returns.
What is the minimum investment required for investing in Index Fund funds?
The minimum investment depends from one scheme to another. In general, for lumpsum investment the minimum investment can range from Rs. 500 to Rs. 5000. Whereas, in case of SIP, the range may vary between Rs. 500 to Rs. 1000. For authentic information, never forget to check the scheme related documents.
What is the investment philosophy followed by Index Fund companies?
The fund manager of Index Fund fund targets the best small sized companies having the potential to generate excellent gains in the future. Such companies do not have much resources as the large cap or mid cap companies but have high potential to outperform many big companies.
Why to invest in Index Fund funds?
Index Fund funds have more tendency of providing exceptional returns than the other categories of funds. Moreover, they can also be a suitable option for providing diversification to your portfolio.
How risky are Index Fund funds?
Index Fund funds are one of the riskiest mutual funds. But at the same time rewards are also high. Therefore, an investor who is willing to expose his corpus towards risk for fetching higher returns should invest in Index Fund funds.
Are Index Fund Funds for long term investment?
Yes, Index Fund funds are a suitable choice for generating long term capital appreciation. Moreover, in short term these funds can cause double digit losses to the investors. Thus, always maintain a long term investment perspective while investing in Index Fund mutual funds.
What is the benchmark of Index Fund Fund?
Benchmark is a standard with which a mutual fund competes in terms of growth & performance. Different Index Fund funds have different benchmark. Thus, read the mutual fund document carefully to know the benchmark.
What are the taxes applied on Index Fund Mutual Funds?
Index Fund funds are eligible for two types of taxes- STCG (Short Term Capital Gain) and LTCG (Long Term Capital Gain). STCG is the capital gain generated on the units which are hold for up to 1 year. The STCG tax imposed by the Government of India is 15%. LTCG is the profit generated on the units which are hold for more than one years. The LTCG levied is 10% for the profit above Rs. 1 Lakh.
