SENSEX or NIFTY has given CAGR profit of around 17% in the last 30 to 35 years in India, according to that, if CAGR is available around 15% even further, then one can make crores of rupees without raising any RISK.
In this way, if you are a short term trader or a stock market expert or a common man, everyone can invest a part of their savings in index funds and invest in the economy of the country, and we all know that no matter what happens - of a country. The economy will go a long way in 30 to 40 years' time, not backward.
Let us know in some more detail about Index Fund-
What is INDEX FUND?
INDEX FUND is a method of mutual fund investment, in which the money of mutual fund is invested in a predetermined index and the stocks coming in that index in the same proportion as those stocks are in that index.
For example, SENSEX INDEX Funds will invest in the stock of 30 SENSEX companies.
And NIFTY-50 INDEX Funds will invest in the stocks of Nifty 50 companies.
INDEX FUNDS is very easy to understand – mutual fund money deposited in index funds will be invested in a pre-determined index and the stocks that come under it.
If we talk about some major index funds, then they are –
UTI NIFTY INDEX FUND , HDFC INDEX FUND SENSEX PLAN.
Benefits of Investing in INDEX FUNDS
1. Investment in Economy
Stock market index of any country does not just represent the stock market of that country, but also represent the entire economy of that country, and in such a situation, investment in the index, in the economy of that country. can be seen as an investment.
LONG TERM All economies will work well, this is the basis of any investment, and thus by investing in INDEX FUNDS, we invest in a whole economy.
2. NO ROLE OF FUND MANAGER
There is no role of any fund manager to select stock in this fund, and in this way we are saved from possible mistakes by any fund manager, if seen in this way then index fund does not DEPEND on fund manager, Rather, the process is DEPEND, and once the index fund is set up and the process starts, it continues continuously.
3. PASSIVE MANAGED FUND
If we look at the basis of managing mutual funds, then there are two types of mutual funds, one is Active Managed FUND – in which the fund manager does BUYING and SELLING by ACTIVELY analyzing the stock.
On the other hand, there are also such mutual funds, which do not require active management, and the money of such funds is invested only in the companies included in the index, such as – INDEX FUNDS
The investor knows in advance that his money will be invested in the company of the index itself, and thus the investor can be sure that his money will be invested in whichever company is doing the best.
4. LESS EXPENSIVE RATIO
In this way, due to less need of a manager or a particular team in INDEX FUNDS, the expenses of index funds are also less, and this is the reason that index funds cost us less than other ACTIVELY MANAGED funds. only, and the EXPENSE RATIO of this type of fund is around 2 to 1%.
And thus, investing in index funds charges the lowest fees as compared to any other mutual fund.
5. INDEX FUNDS is easy to understand and invest in
A common man who does not know anything, what is the stock market, how it works, but he definitely knows that when he was young, what he could buy, today his children are able to buy more than him, And in this way in long term the whole economy goes ahead in the long run.
And in this way the common man can easily understand INDEX, which is an indicator of the country's economy, that investing in index funds means investing in the country's economy.
Index funds are easy to understand as well as easy to invest in, whether it is the index fund of any company, it does not matter much, its profit will be as same as that of the main index.
Disadvantages of Investing in INDEX FUNDS
Comparative Disadvantages –
If we see the loss of investment from index fund, then it is comparative loss.
When we compare index fund with any other active managed fund, there is a big difference in the profit of index fund and fund managed by other fund manager.
And generally in the last 20 years in India, INDEX funds have given a little less profit than other funds.
PROCESS FOCUSED- If a company is not doing well in index fund, then it will be out through the process itself, whereas in active managed fund, the fund manager can take immediate decision, and immediately take out the loss making company and make another investment. could.
How to invest in INDEX FUND
The way to invest in INDEX FUNDS is very simple, you cannot buy direct index, to invest in index you can invest in INDEX FUNDS of any mutual fund company.
Like – UTI MUTUAL FUND, SBI MUTUAL FUND, NIFTY INDEX FUNDS of HDFC, ICICI etc.
You can buy DIRECT PLAN from regular plan or from their website from these company's office, you should buy DIRECT PLAN only.
Apart from this, you will also have the option of growth and dividend pay out, in which you should choose the growth option.
And apart from this you have the option whether you have to invest Lump Sum or SIP, so according to us you should invest SIP.
And in this way, if you invest in an index fund like an index fund, then invest Rs 500 every month for the next 40 years, and in the last 35 years, SENSEX has given a profit of 17% CAGR, the same profit If you get even further, then after 40 years you will have a deposit of Rs 500 every month i.e. the total amount you will get on your investment of 2 lakh 40 thousand – about 2 crore 5 lakh.
How to take advantage of investing in INDEX FUNDS
To benefit from investing in INDEX FUNDS, you should first think about long term investment, and by long term we mean at least 15 years or more than 20 years, 25 years, 30 years or sometimes 40 years.
Because in a short time (SHORT TERM) i.e. in less than 10 years, you get to see a lot of fluctuations in the index of the stock market, and in such a situation if you invest in index funds for less than 10 years then it can happen. you don't get much profit.
But like the Sensex which was at 100 points in 1980, today it has reached 35000 in 2018, but in the meantime it has reached here today after a lot of ups and downs in the short term.
That is, if anyone had invested 100 rupees in SENSEX INDEX FUNDS in 1980, then today its price would have been around 35 thousand rupees, and this is the reason why you should think about long term investment in index funds, so that POWER on your investment Take advantage of OF COMPOUNDING and the short term fluctuations of the market should not have any significant impact on your investment.
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