Many new investors started to look at investment in equity markets and mutual funds. Particularly they want to invest in mutual funds for long term wealth creation. People new to mutual funds markets have fear in investing in mutual funds and have confusion in selecting best mutual funds to invest. There are many active mutual funds in the market. You can analyse the funds and select best one based on expense ratio, AUM and historical returns. In case confusion in selecting best mutual funds, stick to passive mutual funds. Let us discuss what is passive mutual funds and why it is best to invest to avoid confusion in your investment strategy.
What is Passive mutual funds:
An actively managed investment funds are managed by a fund manager. Fund manager and management team makes decisions about how to invest the fund’s money. So investing on particular equity is decided by fund manager. Significant fees paid to fund manager and it increase the expense ratio of the fund. Large cap, small cap, mid cap and ELSS funds are active mutual funds.
In Active mutual funds, stocks chosen and decided by a human manager
Passive(index) funds are mutual funds which track a market index, or a specific market segment. For example Nifty index fund would invest the equities list in Nifty index. Unlike with an active fund, the fund manager does not decide what stocks the fund takes on. The automated system takes care of investment. It automatically invests in Nifty listed stocks. Due to this passive funds cheaper to invest in than active funds, which require the fund manager to spend time researching and analyzing opportunities to invest in.
In Passive mutual funds, stocks chosen and decided by a rule and formula.
Earlier active funds used to give better returns than passive funds. Fund manager has flexibility to select any stocks for all types of funds. So fund managers used to invest mix and match of mid cap and small cap stocks in the funds to get better returns. Recent restriction to mutual funds managers that large cap funds should be invested in large cap companies which are listed in the market. There is no flexibility to select one or more mid cap or small cap stocks to include in large cap funds. Mostly large cap funds would invest in index listed stocks with extra expense ratio. Investing in blue-chip or large cap or index funds holdings mostly would be same, but index funds comes with less expense ratio.
It is better to take a combination of both Direct Mutual Funds and Index Fund
If you already investing in active mutual funds and plan to start new funds, consider index funds. It is better to take combination of both active mutual funds and index funds.
Index funds are cheaper ,less expense ratio and align with market return.
In future,passive funds would give better or equal returns of actively managed funds due to restriction imposed on active funds. So you can start SIP by selecting 2 index funds one Nifty index and one Nifty next index funds. You can start 2,500 rupees in Nifty index and 2500 rupees in Nifty Next funds in SIP.
Nifty Index Funds :
These funds replicate the Nifty 50 by investing in securities of the Nifty 50 in the same proportion / weight. Following on Nifty index funds in Indian mutual fund market.
UTI Nifty Index Growth Direct Plan
DSP Nifty 50 Index Growth Direct Plan
HDFC Index Nifty 50 Growth Direct Plan
ICICI Prudential Nifty Index Growth Direct Plan
SBI Nifty Index Growth Direct Plan
Nifty Next Index Funds :
To invest in companies which are constituents of NIFTY Next 50 Index (underlying Index) in the same proportion as in the index and seeks to generate returns. Following are Nifty Next index funds.
UTI Nifty Next 50 Index Growth Direct Plan
DSP Nifty Next 50 Index Growth Direct Plan
ICICI Prudential Nifty Next 50 Index Growth Direct
Motilal Oswal Nifty Next 50 Index Growth Direct Plan
Sensex Index Funds :
To replicate the composition of the Sensex with a view to generate returns that are commensurate with the performance of the Sensex. Following are sensex funds in Indian market.
Nippon India Index Sensex Growth Direct Plan
LIC MF Index Sensex Growth Direct Plan
ICICI Prudential Sensex Index Growth Direct Plan
HDFC Index Sensex Growth Direct Plan
how to buy nifty index fund direct growth :
Login to respective mutual funds portal and start investing in index mutual funds. Otherwise you can login to mutual fund aggregators platforms such as Zerodha Coin, Kuvera, PayTM Money and ETMoney portals.
In case your investment horizon is more than 10 years such as retirement or children education goal, start investing in Nifty and Nifty Next funds.
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