How to invest in Index Fund in India Easy Steps 2023

Contents

1 What is Index Fund?
2 What are the benefits of an Index Fund?
3 Thing’s to watch out for before investing.
4 Why Average Expense Ratio is Important?
5 How to invest in Index Fund?

What is Index Fund?

In simple words, index funds are the funds that track the current market index. Some of the index funds are Nifty, Bank Nifty, Sensex, etc. One can also say that an index fund is like a mutual fund your money gets distributed in multiple stocks. Nifty 50 there is a top 50 company in the country whereas in Sensex there is a top 30 company. Basically, it is a collection of multiple stocks for easy understanding.

What are the benefits of an Index Fund?

Low Charges: if you compare with other stocks when one invest in an index fund high probability that compared to other stock index fund will charge less, which helps you get less deduction in your return and provide more profit in your return.
Beat most of the mutual funds: if you compare the mutual fund return and index fund return there is a high probability that the index fund will beat most of the mutual funds I know there might be certain exceptions where one of the mutual funds has performed well compared to index fund but if you see the overall return for most of the time index fund beat mutual Fund.
The best form of investing: you all know Warren buffet himself says that the best form of investing is to invest in an index fund he says that investing in an index fund can give you much more return and will beat most stocks.
Anyone Can Invest: the best part of index funds is that anyone can invest you don’t need to be an expert in the market to invest in an index fund you can put your money in index funds just by researching in no time.

Thing’s to watch out for before investing.

There are certain things to watch out for before investing in an index fund some of them are listed below 👇🏿

You have to have your emergency fund see you don’t want your investment to be stopped in the middle so that you will not get the full benefit of your investment or you can say that you will miss the power of compounding.
Insurance is essential I recommend two insurance that every person should get health insurance and term insurance on top of that you can get any you want but these two are very important.
If you invest in an index fund try to see that tracking error, it should be less.
Do research by yourself don’t follow anyone blindly.

Why Average Expense Ratio is Important?

The average Expense Ratio is very important because when we buy stocks, mutual funds, or index funds there are some charges that we have to pay an average experience becomes very important because many experts also miss this point and they neglect it. But this is wrong you are not aware that your Average Expense Ratio can make a huge difference in your returns just by reference I am giving the example that I had come around and it had blown my mind and surely you too after seeing the data.

Let’s say you are investing 10 lacs for 20 years at a CAGR of 15%. Large Cap Category Average Expense Ratio is 1.5% so you get amount at the end of 20 years will be 1,25,86,855 Rs. You will say wow after seeing the return but wait. In the index fund, the Average Expense Ratio is 0.2% so you get the amount at the end of 20 years will be 1,58,06,574 Rs I know you will be shocked 😲 but the reality is this. You can save 32,19,719 Rs if one had invested properly.