Even while not everyone is a good candidate for direct investment, the availability of mutual funds and index funds that enable indirect investing has made it simple to enter the stock market. Index funds and other mutual fund investment products are popular among novice retail investors in India, which is a prime example. The Average Assets Under Management (AAUM) of the Indian mutual fund sector was 61.33 lakh crore (₹61.33 trillion) as of June 2024. The remarkable surge in mutual fund investments can be attributed to both the convenient accessibility of products like index funds in India and a rise in consumer awareness of these products.
Before talking about the top ten index funds in India, let's clarify what an index fund is.
What is an index fund?
An index fund is a collection of stocks (or other assets) that seeks to replicate the performance of an established market index, such as the S&P 500 index. An index comprises companies or securities that represent a specific segment of the financial market. Some sizable indices may provide a view into the overall state of the economy.
The investments that comprise an index fund are the same as those that comprise the index it monitors. Thus, the index fund's performance often closely reflects the index's, negating the need for direct management.
What is the process of index funds?
The objective of index funds is not to outperform the market or generate returns that are greater than average. To replicate the performance of the market index as a whole, these funds instead attempt to mimic the market by purchasing equities of every company included in the index.
As a result, index funds are regarded as a passive management approach. This implies that they are not required to actively choose which investments to purchase or sell. When opposed to individual equities, index funds are frequently used to help investors manage the risk in their portfolio because market fluctuations are typically less pronounced across an index.
Top S&P 500 index funds
Many funds base their investments on the S&P 500, one of the most popular stock market indices in the world. Of these five, five are particularly noteworthy.
FNILX, or the Fidelity ZERO Large Cap Index
As the name suggests, the Fidelity ZERO Large Cap Index mutual fund is a part of the financial firm's venture into expense-free mutual funds.
Although the fund technically tracks the Fidelity U.S. Large Cap Index rather than the S&P 500, the distinction is immaterial.
The main distinction is that Fidelity, which is a company that caters to investors, does not have to pay a license fee to use the S&P brand, which keeps investor expenses down.
Trust SPDR S&P 500 ETF (SPY)
The SPDR S&P 500 ETF, which was established in 1993, is considered the grandfather of ETFs. It played a part in launching the current surge of ETF investing.
Among the most well-known ETFs, the fund has hundreds of billions of dollars in assets. State Street Global Advisors, another major player in the market, sponsors the fund, which follows the S&P 500.
The Motilal Oswal Nasdaq 100 FOF Plan
By purchasing shares of the Motilal Oswal Nasdaq 100 ETF, this fund seeks to produce returns. In addition to providing exposure to the Nasdaq 100 Index, which consists of 100 of the biggest non-financial businesses listed on the Nasdaq stock market, it is intended for investors looking for long-term capital appreciation.
Index Fund for the Axis Nifty 100
When tracking mistakes are taken into account, the program seeks to produce returns that roughly match the NIFTY 100 Index's total returns before expenditures. Investing in a variety of equities from the Nifty 100 Index is a long-term wealth growth strategy.
UTI Next 50 Index Fund for the Nifty
This is an index mutual fund that is passively managed to produce returns that are consistent with the underlying index; however, subject to tracking mistakes and fees. After the NIFTY 50, the Nifty Next 50 is the next rung of liquid securities. It is made up of 50 firms that account for around 10% of the total value of all equities listed on the Indian National Stock Exchange.
Fund for the UTI Nifty200 Momentum 30 Index
Replicating the Nifty200 Momentum 30 Index Fund, this is an open-ended plan. In our ranking of the top ten index mutual funds, this is the first plan that doesn't follow a more general index like the Sensex or Nifty 50.
Based on the "Momentum" in the large- and mid-cap world, the NIFTY 200 Momentum 30 Index was created. In order to duplicate its returns, excluding tracking errors, the fund passively monitors the index.
Do index funds have a price tag?
Index funds are less likely than actively managed funds to incur fees that reduce your returns. They need less effort than managed accounts, which explains why. You are not paying a third party to analyze financial information and make purchasing decisions. Even though they could be less costly than other products, index funds might nevertheless have expenses. The following are the key ones:
Investment Minimum. The minimal amount needed to invest in a mutual fund might range from zero to several thousand dollars. The majority of funds permit investors to make smaller contributions once they have surpassed that level.
Account minimum. The investment minimum is not the same as this. Even though a brokerage may have a $0 account minimum (which is typical for clients opening a regular or Roth IRA), this does not negate the investment minimum for a specific index fund.
The ratio of expenses. One of the primary expenses of an index fund is this. Expense ratios are the percentage of fees deducted from each fund shareholder's returns relative to their total investment. The cost ratio may be found in the prospectus of the mutual fund or when you search for a mutual fund quote on a financial website.
Tax-cost ratio. Owning the fund may result in capital gains taxes in addition to fees if it is kept outside of tax-advantaged vehicles like an IRA or 401(k). These taxes have the potential to reduce investment returns, much like the cost ratio.
Frequently asked questions
Q: Among the benefits of index funds are which?
Buy that exposes you to hundreds of stocks.
Just a few index funds can help you create a diverse, well-balanced portfolio.
Compared to individual stocks, it could be easier to study and less expensive.
Q: In what ways do index funds have drawbacks?
Distributions might result in a need to pay income taxes.
Large investment minimums are required for several index mutual funds.
The market return is what index funds provide; they cannot outperform it.
Q: Does an index fund make money?
No doubt investing in an index fund may provide benefits. Like any other investment, they do, however, come with dangers. Your gains are contingent upon the performance of the underlying index that the fund tracks. You will profit from your investment if it performs well; if it does not, you may lose money.
Q: How can I begin my online Index Funds SIP?
To initiate a systematic investment plan (SIP) in index funds online, select a mutual fund platform such as Dhan, register, and finish the KYC procedure. Next, decide which index fund to invest in, choose your investment amount and frequency, select the SIP option, and connect your bank account to receive automatic withdrawals.
Q: Which index fund option is preferable, lump sum or SIP?
Depending on your financial circumstances, you may want to choose a lump amount or a systematic investment plan (SIP). SIPs let you invest consistently over time, whereas lump sums require you to deposit a large sum all at once. SIP helps even out investment costs and can make money easier to manage.
Q: Is investing in an index fund passive income?
Because index funds rely on the performance of a market index, they do not require active management. This is why they are referred to be passive investments. They differ from other mutual funds because of this feature.
Q: How does an index fund vary from an exchange-traded fund (ETF)?
An index fund is a sort of mutual fund, but an exchange-traded fund (ETF) is traded on stock exchanges and is not a mutual fund. This is the main distinction between the two.
Conclusion
The market is filled with many index funds that track various indices and are provided by various investment providers. The process of selecting the best index fund might be difficult. To make your index mutual fund selection process easier, we have compiled a list of the top 10 index mutual funds in India, arranged by the amount of their assets under management (AUM).
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