loader2
NRI
NRI

Index Funds

Index funds are mutual funds that invest in stocks that imitate a stock market index such as Sensex or Nifty. The funds are passively managed, and the fund manager invests in securities as per the underlying index without changing the composition of the portfolio. The fund aims to offer returns the same as the underlying index. If you are interested in making the most of what any index has to offer, then take a look at the best index funds and pick them according to your requirements.

apply

FAQs

What are some factors to consider before investing in an index fund?

If you want to invest in index funds, here are some aspects you must consider:

  • Risks and returns: Although index funds are less volatile than other equity - based instruments, it is usually believed to be a safe bet to switch to actively managed equity funds in case of a market slump. Ideally, you should create a portfolio that consists of both.
  • Expense ratio: Normally, the fund house managing your funds will charge a small expense for their services. However, since an index fund is passively managed, these charges are considerably lower than actively managed funds.
  • Investment plan: Usually, index funds work well for those investors who want to invest for a long period. This is because index funds experience fluctuations in the short term, while they get smoothened out over a longer duration.
  • Tax: Since index funds are equity - based, they are subject to tax on both the dividends earned as well as capital gains tax. Thus, consider how much tax you are willing to pay before investing.

An index is a method that allows one to track the performance of a group of assets. These assets are clubbed together as per an area of the market, size of the companies, market capitalization, etc. In India, the benchmark equity indices are the BSE Sensex and NSE Nifty.

Index funds can witness a lot of fluctuations over a short period and are thus not suited for those with shorter investment horizons. Also, index funds are meant to track an index. Sometimes there are errors in this area and a fund only invests in a sample of the securities listed on the underlying index, affecting performance.