As an investor, asking questions like 'What are index funds in India" before investing is a solid way to educate yourself before making your investment. So, here is detailed information about Index funds In India and how they work, what are their benefits and drawbacks.
As the name suggests, these funds invest in the stocks of a particular Index. According to the SEBI, these funds must invest a minimum of 95% of their total AUM in stocks of the particular index.
For example, Aditya Birla Sun Life Nifty 50 Index Fund is an index fund which invests in stocks of Nifty 50 Index. As of date, the fund has invested over 99% of its total AUM in the stocks of Nifty 50 Index.
Benefits of Index Funds in India
- These funds possess very high liquidity.
- They usually have a lower expense ratio than other funds because they are passively managed and have very low transaction costs. For example, the expense ratio of Aditya Birla Sun Life Nifty 50 Index Fund regular plan is 0.47% as of 30.11.2024, while the expense ratio of Aditya Birla Sun Life Frontline Equity Fund - Regular Plan is 1.65%.
- They are well diversified which reduces the risk of loss of capital.
- Investors who seek capital appreciation over the long term with reduced risk may consider them. These are also good investment options for new investors who want to invest in the stock market through mutual funds. As of date, the Index Fund, Aditya Birla Sun Life Nifty 50 Index Fund has given 15.30% returns since its launch which is better than other traditional investment options like FD or savings account.
What are the drawbacks of Index Funds in India?
Nothing comes without cons and so do Index funds, and below are some of the drawbacks of these funds.
- When the Index goes down, your portfolio value will also go down because the Index funds only track the performance of the stocks of a particular index.
- These funds also don’t grab the opportunities available elsewhere due to their set of rules to invest in stocks of a specific index which limits growth.
How to buy Index Funds in India in the safest way?
You can invest in these funds through the website of the AMC, or your local distributor. Now you can also start investing in index funds through UPI platforms. However, you have to complete your KYC before you can invest in these funds.
Also learn about; What are liquid funds?
What are the other places where we can find more information about Index Funds in India?
More information about the index funds can be found in the following places;
1. website of Asset management company
2. SEBI (Securities and Exchange Board of India)
3. AMFI (Association of Mutual Funds in India)
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