An investor may choose to invest in the market through two investment strategies- active and passive investing. Active investing refers to selecting stocks depending on the company’s fundamentals. On the other hand, passive investing refers to tracking a benchmark index and replicating its composition in the portfolio.
Board market indices like Nifty Index Fund are preferred as a choice that helps in giving the asset class exposure. Since Nifty Index Fund is not a security by itself, the investor needs to purchase all the constituent stock with a similar weightage to have a similar investment exposure. Such a plan necessitates a larger investment. An investor needs to track the index for any changes that could happen.
What is a Nifty Index Fund?
Nifty Index Fund is a mutual fund scheme that tracks the Nifty 50 index by investing in stocks of companies comprising NIfty 50 to achieve a return equal to Nifty 50 Index by passive investment strategy. For a passive investment, it is necessary to track the index. As the Nifty Index Fund follows a passive strategy, management charges, Total Expense Ratio tends to be lower than the active mutual fund scheme. Nifty Index Fund also emerged as a low-cost investment product for investors. It also helps investors generate investment returns concurrent with the benchmark Index for the portfolio.
What to Note Before Investing in Nifty Index Fund?
When choosing the index fund, you should be aware of the tracking error, that is, the difference between the fund’s return and the index return. The lower the difference, the better the fund choice. You also need to analyze the fund from different angles. There are many quantitative and qualitative parameters to determine the best index funds for your needs. You need to keep your financial goals in mind, risk appetite, and investment horizon.
You can invest in the Axis Nifty Index Fund using the Axis MF App. The benefit of Axis MF App is that you can have exposure to the top 100 companies by float market capitalization through a single investment. If you are looking for a long-term wealth solution, you can invest in the Nifty Index Fund through Axis MF App. You can choose the minimum amount to invest in; it can be a Lump Sum investment, additional investment, or Systematic investment.
Considerations Before Investing in the Nifty Index Fund
Here are some of the important aspects you must consider before investing in the Nifty Index Fund.
Being an equity fund, Nifty Index Fund is subject to dividend distribution tax and capital gains tax subject to dividend distribution tax and capital gains tax.
Investing According to Your Investment Plan
The Nifty Index Fund comes with 7 years or more investment horizon. The funds experience fluctuations in the short term, but it averages out over a longer period.
Risk and Returns
Since Nifty Index Fund tracks a market track and is passively managed, they have lower volatility than actively managed funds. Hence the risks are lower.
The expense ratio is a modest proportion of the fund’s total assets for fund management services levied by the fund house. One of the biggest advantages of the Nifty Index Fund is its low expense ratio.
How Does the Nifty Index Fund Work?
For example, an Index Fund is tracking the NSE Nifty Index; this fund will have 50 stocks in its portfolio in similar proportions. An index can include equity and equity-related instruments with bonds. The Index Fund ensures that it invests in all the securities that the index tracks.
Whereas an actively managed fund ventures to outperform its underlying benchmark, an index fund being passively managed tries to match the returns offered by the underlying index.
Taxation for Nifty Index Fund
95% of the net assets are invested in the index constituents of the Nifty 50 Index. And hence these funds are classified as equity-oriented mutual funds for tax purposes, and accordingly, equity mutual taxation is applicable.
With the Nifty 50 Index Fund, investors aim to benefit from the wealth creation potential of equity markets by participating in the broader market.
Index funds are appropriate for risk-averse investors seeking predictable returns. Investing in the Nifty Index Fund would be better off splitting allocation between a Nifty Next 50 Index fund and a Nifty 50 fund. Before investing, you should consider that any investment should be as per their risk profile, asset allocation, and investment requirement.