Does Index Fund make investing in mutual funds free of worries? | The Financial Express

Does Index Fund make investing in mutual funds free of worries?

Due to their simplicity, index funds may be a great option for someone who has just started, or planning to do so, investing in equity-related instruments.

Does Index Fund make investing in mutual funds free of worries?
Check benefits of index funds

Index Fund is one of the fastest-growing equity mutual fund categories. It is witnessing growth both in terms of the number of investors and the number of schemes being launched by different asset management companies. In October 2022, Index Fund net flows were over Rs 5000 crore. The total number of Index Fund folios as on October 31, 2022, was 29,98,216 while the total number of index fund schemes were 126.

Due to their simplicity, index funds may be a great option for someone who has just started, or planning to do so, investing in equity-related instruments. Index Funds replicate an index in their portfolio. The management of this fund does not depend on human intervention. As it tracks diversified benchmarks like Nifty 50, Index Funds enable investors to have exposure to a diversified set of stocks.

Invest and forget

Index fund investing may reduce several problems faced by individuals investing in other schemes. Experts say that investing in index funds is free of several worries as investors are not required to constantly monitor the performance of his/her fund.

“Investors that have a long-term outlook and believe in India’s growth story should invest in index funds. Investors can use index funds to pursue their long-term financial goals because they are more likely to perform well in the long run. In comparison to active funds, you do not need to regularly monitor index funds as long as your investments and financial objectives are in line,” says Rajani Tandale, Product Head, Mutual Fund at 1 Finance.

Index Fund Returns

Several index funds have given very high returns since their respective launch dates. Following are some examples of 5 top-performing index funds since inception (as per data on AMFI website on 21 November 2022):

Nippon India Nifty Smallcap 250 Index Fund: The direct plan of this scheme has given a return of 34.63% while the regular plan has given a return of 33.61% since launch. The scheme tracks NIFTY Smallcap 250 Total Return Index.

L&T Nifty 50 Index Fund: The direct plan of this scheme has given a return of 32.51% while the regular plan has given a return of 31.97% since launch. The scheme tracks NIFTY 50 Total Return Index.

L&T Nifty Next 50 Index Fund: The direct plan of this scheme has given a return of 26.63% while the regular plan has given a return of 26.06% since launch. The scheme tracks NIFTY Next 50 Total Return Index.

Motilal Oswal Nifty Midcap 150 Index Fund: The direct plan of this scheme has given a return of 25.9% while the regular plan has given a return of 24.99% since launch. The scheme tracks NIFTY Midcap 150 Total Return Index.

Motilal Oswal Nifty Smallcap 250 Index Fund: The direct plan of this scheme has given a return of 25.70% while the regular plan has given a return of 24.84% since launch. The scheme tracks NIFTY Smallcap 250 Total Return Index.

Biggest benefit of investing in index funds

One of the biggest benefits of investing in index funds is that it cuts risks due to human bias/discretion.

“The index funds are popularly known for their low management fee as this fund mimic only the index. Index funds also eliminate human discretion/bias while making investment decisions,” says Tandale.

Can index funds give better returns than other funds?

As seen above, several index funds have given very high returns since their respective launch dates.

“As per the past performance Index funds are outperforming the active funds under large-cap and midcap categories. Whereas this is slightly better than in smallcap category. As per the recently published SPIVA India scorecard report, the actively managed funds are underperforming compared to index funds.,” says Tandale.

(Mutual fund investments are subject to market risks. Please consult your financial advisor before investing in Index Funds. Views expressed above are those of the respective commentator)

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First published on: 22-11-2022 at 04:12:34 pm
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