How to invest in Index Funds?

I want to invest in index funds through SIP. How to purchase index funds?

Investing in an Index fund is not much different than investing in any other actively managed fund. The procedure is same- Find the fund and set the investment amount.

The biggest benefit of investing in an index fund is that it is passively managed. This means that the expense ratios for these funds are comparatively quite small. Further, the portfolio of all these index funds will be the same. So, you won’t need to spend a lot of time figuring out the best fund.

In addition, you’ll get returns similar to the performance of the index (no need to worrying about beating the market).

Here are few best index funds lists–

Source: FundsIndia

I hope it helps. Cheers!!

in zerodha index funds investment is there?

you can purchase index fund through offline as well as online mode.For online mode you can register with online website-rupeevest and then you can start your SIP. Best index fund to invest is ICICI Pru Nifty Next 50 Index Fund(G) and the primary objective of the fund is to invest in companies whose securities are included in Nifty Junior Index and to endeavor to achieve the returns of the above index as closely as possible, though subject to tracking error.You can get more details from the below mentioned link.
Source:-https://www.rupeevest.com/Mutual-Funds-India/11889

@Giriprasad said:
in zerodha index funds investment is there?

Check in Zerodha Coin, they have index funds.
Problem with zerodha is, as soon as your investment amount goes above Rs25000/- it will start charging to Rs50/- every month.
Rest Zerodha is good.

@ankitachauhan said:
I want to invest in index funds through SIP. How to purchase index funds?

Just search for list of index funds on google or follow the list provided by @Kritesh_Abhishek .
In Index fund you have to look for 2 things blindly.
a. Expense Ratio (Should be low)
b. Tracking Error (Should be low)
As index funds are passively managed, returns from them are more or less same only (depending on expense ratio and tracking error).

@Prateek said:

@ankitachauhan said:
I want to invest in index funds through SIP. How to purchase index funds?

Just search for list of index funds on google or follow the list provided by @Kritesh_Abhishek .
In Index fund you have to look for 2 things blindly.
a. Expense Ratio (Should be low)
b. Tracking Error (Should be low)
As index funds are passively managed, returns from them are more or less same only (depending on expense ratio and tracking error).

Good points @Prateek

Tracking error is another factor that one needs to be check before investing in index funds.

Tracking error is defined as the annualized standard deviation of the difference in returns between the Index fund and its target Index. In simple terms, it is the difference between returns from the Index fund to that of the Index. Read more about tracking error here.

Thanks!

@ankitachauhan said:
I want to invest in index funds through SIP. How to purchase index funds?

Yes, You can purchase an index fund directly from a mutual fund company or a any best stock broker online . Same goes for exchange-traded funds, which are like mini mutual funds that trade like stocks throughout the day. Of all the indices in India, there is one index that almost no mutual fund is willing to benchmark against - this is Nifty Next 50 - index of stocks at positions 51 to 100 in market cap. Please look at the movement of this index in the last decade or so.

You can invest in Index Funds in India the same way you are investing in other mutual fund schemes.

Index funds follow a particular index like Sensex or NIFTY etc. and tries to replicate the Index returns through the Index Mutual Fund scheme. In this context you can read the following -

In case you want to invest in Index funds you can set up an online account then try to contact Ajmera x-change

Different Ways To Invest In Index Funds
There are currently two ways to invest in index funds,

  1. Open Ended Index Funds (‘OEIF’)
    This is the same system as the mutual fund, where in accordance with NAV, the units can be bought and sold. The cost and returns can be lower as compared to the other way of investing in index funds i.e Exchange Traded Fund. The OEIF can be bought in a similar way to a SIP, by regularly investing and plus there is no need to open a separate Demat account. These funds are better for long run stability and quick liquidity.

  2. Exchange Traded Fund (‘ETF’)
    This fund can be brought only with the help of a stock broker and stock exchanges, thus need a Demat account. The ETFs offer better returns, however, they lack the system like SIP and can cost slightly higher due to their different values in each month. They also lack the feature of quick liquidity, as buying and selling might take some time and thus making it difficult to calculate the average returns.

Investment decision in a mutual fund solely depends on risk preferences and investment goals. You can invest in index funds online as well as offline. The popular indices are BSE Sensex and Nifty Fifty. Since index funds tracks a particular index, they fall under passive fund management. Since index funds map an index they are less prone to volatility like equity. It is always advisable to have a mix of actively managed funds.

Index funds are popular in developed markets such as the US and UK as compared to emerging countries like India. Due to re-categorization in mutual funds schemes, investors have made a gradual shift from the active mutual funds to less-known index funds. The fund managers have to follow the mandate given by SEBI and will play with the defined boundaries. Still, the fund managers will try to select stocks which beat the benchmark, but the outperformance will be less as compared in the past.

One cannot compare efficient markets like the US, where many investors are inclined towards index funds versus the Indian market. Also, the Indian market is yet to achieve the scale and capitalization, which is much lesser as compared to the developed markets.

Index fund generates return in-line with the market
Having said that, many conservative investors who were investing in large-cap funds, earlier, have moved to index funds to reap the benefits of volatility in the market and lower expense ratio. Some analysts do believe that actively managed funds will give better returns like in the past, and the flexibility that the fund manager enjoys to choose funds that can outperform the index. The index funds mirror the given index, returns will be inclined to rise or fall of the index. Some of the active mutual funds do have lower expense ratio, which puts them in a level playing field as compared to index funds.

In the present situation, index funds have outperformed or taken less hit than the large-cap, mid-cap or small-cap funds. Although large-cap funds will find it difficult to beat the benchmark, one should not invest in mutual funds, which have not been a consistent performer in the past 3 or 5 years. Large-cap mutual funds should be selected wisely, and if the investor has a conservative profile, then the index funds are the best to invest in via Systematic Investment plan (SIPs).

Tracking Error of Index funds

If the Sensex falls or rise by more than 25%, the index funds will mirror the performance of the Sensex, barring a minor error. This error is related to an expense charged by the fund as management charges, marketing expenses, fees, etc. The index funds will give less returns of 1%-2% as compared to Sensex, which is also called as tracking error.

Difference between Index and other funds
Index funds are passive funds, wherein the fund manager plays no role in selection of stocks. On the other hand, the fund manager selects the stocks, which can beat the benchmark, and crucial for the fund’s performance. However, there have been times wherein the fund manager has selected incorrect stocks, which dampens the performance of the mutual fund. Such phase may be short-to-medium-term as many established fund managers select stocks, which have beaten the benchmark.

For new investors, index funds are the best to invest as it helps them to get familiar with ups and downs of the market and make them more aware of the shifts in equity market. Also, the time has come to give up the large-cap mutual funds as the fund manager can invest within the boundary line, thus affecting the performance of the fund i.e. outperform or fall back. At least, the index funds having large-cap stocks too can mirror the performance of the index and generate better returns in line with the market.

The falling expense ratio of the index funds have made them attractive. To view the table of different index funds, click here: http://www.shoprwise.com/are-index-funds-better-than-active-mutual-funds/