What is Index Fund and How to Invest in Index Fund

Hello, so we will understand how to invest in index funds, we will understand what an index fund is. See Index e fund is a passive fund. Now the question comes to what this passive fund is.
So there are two types of funds. Active fund and Passive fund

Active Fund

An active fund is fund managers actively. They analyze different industries and companies and then decide which stocks to buy; Hencefund managers actively manage active funds their expense ratio is high. Managing the fund, you charge a High fee, ranging between 1{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} to two 2{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a}. If the expense ratio of a fund is 2{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} and you invest 1000 rupees in it, then that mutual fund will deduct 2{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} of your total investment annually for 1000 rs is 2 {c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} of 20 rupees from you annually in return for managing your fund. Will charge Rs.

Passive Fund

Now let’s talk about Passive Funds. Passive funds are not actively manage. An index fund is a good example of a passive fund. Index funds are investing in different indices. Sensex Nifty this is indices. If there is any Nifty Index fund, then that fund will invest your money in Nifty according to its weightage in the stocks from which they are.

There are 50 stocks in Nifty50, and HDFC Banks has a weightage of 10.67{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a}. Reliance Industries has been given a weightage of 9.98{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a}. Infosys has been given a weightage of only 6.04{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a}, and similar weighting has been given to the rest of the companies. So now, whatever money you invest in it of Nifty, 10.67{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} of the total money will be investe in HDFC Bank stocks. 9.98{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} money will be investe in the stocks of Reliance Industries. 6.04{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} of the money will be investe in the stocks of Infosys and, similarly, will be investe in the rest of the stocks.

Job of Index fund

The job of an this is to track the performance of the indices; as much as the return the index is giving, the same return is given to the people through this. Index funds do not have to be actively manage. Hence their expense ratio is very low.

for example
If we talk about HDFC index nifty fifty, then the expense ratio of its direct plan is 0.10{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a}, which is almost negligible in this.
Metro John C Bogle started the concept of index funds. Index funds are quite popular in the US in other develope countries, but they are not as popular in India yet.
Warren Buffett also asks people to invest in index funds; recently, he has written a newsletter in which he has also advised people to invest in index funds.

How to invest in index fund.

now the question comes how to invest in an this.

  • Index funds come in two formats, one in the ETF format and the other in the normal format, which is index funds in the ETF format.
  • His exam is fast. HDFC Sensex ETF Reliance ETF etc. To invest in an ETF index fund, you need a Demat account, and after a Demat account, you can buy these.
  • Normal index funds such as HDFC Index Fund nifty 50, HDFC Index Fund, SBI Nifty Index Fund Etc. Of these, you have to invest in the same way as you normally invest in mutual funds. Index Fund can buy these funds from Groww, Kuvera, Paytm money etc., free direct plans, or you can buy from the website of AMC.

For example
If you want to buy SBI Nifty Index Fund, then you can buy this index fund by visiting the SBI Mutual Fund website. ETFs cannot SIP in index funds the same way they can SIP in normal index funds, which is a very good thing. While buying INDEX Fund, always keep in mind whether you are buying a Direct Plan because the direct plan expense ratio is very low.