- 1 WHAT IS INDEX FUNDS?
- 2 WEALTHY PEOPLE INVEST IN INDEX FUNDS
WHAT IS INDEX FUNDS?
Index Funds today are a source of investment for investors looking at a long term, less risky form of investment. The success of index funds depends on their low volatility and therefore the choice of the index.
YOU SHOULD DEFINITELY LOOK AT THE 3rd POINT WHICH IS THE MOST IMPORTANT AND OUR FAVORITE POINT FOR WHICH INDEX FUNDS ARE FAVORITE OF MANY WEALTHY PEOPLE
Some of the Index funds in India.
|Sr. No.||Index Fund||Index||Launched||Issuer|
|1||Birla Sun Life Index Fund||NIFTY 50||Sep-02||Birla Sun Life AMC Ltd.|
|2||Franklin India Index Fund – NSE Nifty Plan||NIFTY 50||Jun-00||Franklin Templeton AMC (India) Private Ltd.|
|3||Goldman Sachs Nifty 500 Fund||NIFTY 50||Nov-08||Goldman Sachs Asset Management (India) Private Ltd.|
|4||HDFC Index Fund – Nifty Plan||NIFTY 50||Jul-02||HDFC AMC Ltd.|
|5||ICICI Prudential Nifty Index Fund||NIFTY 50||Feb-02||ICICI Prudential AMC Ltd.|
|6||ICICI Prudential Nifty Next 50 Index Fund||NIFTY Next 50||Jun – 10||ICICI Prudential AMC Ltd.|
|7||IDBI Nifty Index Fund||NIFTY 50||Jun-10||IDBI Asset Management Ltd.|
|8||IDBI Nifty Junior Index Fund||NIFTY Next 50||Sep-10||IDBI Asset Management Ltd.|
|9||IDFC Nifty Fund||NIFTY 50||May-10||IDFC AMC Ltd.|
|10||LIC MF Index Fund – Nifty||NIFTY 50||Nov-02||LIC Mutual Fund AMC Ltd.|
|11||Principal Index Fund – Midcap||NIFTY Free Float Midcap 100||Jul-99||Principal PNB AMC Private Ltd.|
|12||Principal Index Fund – Nifty||NIFTY 50||May-14||Principal PNB AMC Private Ltd.|
|13||Reliance Index Fund – Nifty Plan||NIFTY 50||Sep-10||Reliance Nippon Life Asset Management Ltd|
|14||SBI Nifty Index Fund||NIFTY 50||Dec-01||SBI Funds Management Ltd.|
|15||Tata Index Fund – Nifty Plan||NIFTY 50||Feb-03||Tata AMC Private Ltd.|
|16||Taurus Nifty Index Fund||NIFTY 50||Jun-10||Taurus AMC Ltd.|
|17||UTI Nifty Fund||NIFTY 50||Mar-00||UTI AMC Pvt Ltd.|
WEALTHY PEOPLE INVEST IN INDEX FUNDS
When you invest in the index funds you do not have to manage beta. Replicating index itself the beta would be equal to one. You do not have to spend time in doing company selection. Index funds are not for those who are looking to beat the alpha returns. With contemporary financial tools, one can beat the alpha returns but will have to do a full-time trading activity.
Stock picking skills can be put to use only if you are good at beating the alpha returns. Now with more returns, one is also accepting more risk. With index funds, the stock picking activity can completely be ignored. Moreover for alpha kind of returns, one has to at least believe he has more information than the market has. Above all this stock picking skill is a real talent and talent comes at a cost. Hence the higher fees are again adjusted in higher returns. You would be surprised to know that majority of fund managers fail to outperform the market returns.
Fewer Charges & Less Tax
The strategy for investing with ETF is usually “buy and hold” strategy and its the only strategy which one has to follow. With this kind of strategy, there are enormous benefits such as capital gains which in turn can have a big impact on return on investments. Since the index is replicated in these kinds of funds the churning of stock is very limited. Index construction is very unique and it has many criteria to follow and its limited churning gives it a huge advantage. Now when the churning is restricted the savings are so huge that has a direct impact on the return of the stock. The turnaround ratio of actively managed funds is very high. Compared to active funds the fewer charges are again an advantage.
Below is the list of expense ratio of the index funds.
|Mutual Fund||Expense Ratio|
|Franklin India Index Fund – NSE Nifty Plan – Growth||1%|
|UTI Nifty Index Fund – Growth||1.50%|
|Tata Index Fund – NIFTY – Option A||1.50%|
|HDFC Index Fund – Nifty Plan||1.00%|
|Nifty Benchmark Exchange Traded Scheme – Nifty BeES||0.50%|
|LIC Index Fund – Nifty Plan||1.16%|
|IDBI Nifty Index Fund – Growth||1.50%|
|Taurus Nifty Index Fund – Growth||1.50%|
|Reliance Index Fund – Nifty Plan – Growth||0.40%|
|ICICI Prudential Index Fund||1.50%|
|Canara Robeco Index||1%|
|IDFC Index Fund||0.25|
The main advantage of the index fund is its risk management. The index fund is the best option for low-cost diversification.
Nifty 50 Index Methodology is very interesting. You should go through the document to understand better.
The NIFTY 50 is a diversified 50 stock index accounting for 12 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives, and index funds.
Nifty Indexogram is the Fact Sheet which explains in details about the same.
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