Before going into the details of which are the best index mutual funds to invest in, given the current market landscape. We'll detail about the investment option as why and who should index mutual fund and for what purpose typically?
What are Index mutual funds?
Index mutual funds as the name suggest include constituents or have investment in some of the components of the index such as the Nifty or Sensex. And as these are passively managed, the cost that comes with it is relatively low. So, basis the index, the particular index mutual fund will give returns. So, if HDFC has 12% weightage in Nifty, Nifty index fund will also hold shares of HDFC in the same proportion.
Who should invest in index mutual fund?
As the index funds mimic the return provided by the index, they do not outperform the index in any way. So, in all possibly one can expect reasonable returns from them. Also, in the recent past, mutual fund advisors have been advising to allocate some portion of one's investible surplus to this category as these have outperformed actively managed funds.
Their less risky nature in times of acute correction is also one feature that can be considered by potential investors. Further savings due to their cost effectiveness can turn out to be a great deal during a long run as in a year's time investor can save between 0.5-1.5% annually.
So, by having index funds in your kitty you also draw the satisfaction of participating in whatever underlying market it represents.
What one should take note of when investing in Index funds?
Tracking error i.e. the deviation of the fund from the index performance should be watched for by the potential investor in index scheme. And lower it, better shall be the fund.
What are the benefits of investing in Index mutual funds?
In correct times of steep correction, by investing in index mutual funds, investor need not wary of huge volatility that he or she might have to confront when investing in other actively managed funds.
Further, as these typically are representative of a particular index, there is nil influence of the manager, whose call may or may not be in sync with the market movement.
5 Best Index Funds To Invest In 2020
1. UTI Nifty Index Fund: The fund carries moderately high risk and with assets under management to the tune of Rs. 1827 crore has managed to give a 1-year and 3-year return of 13.7% and 14.3%, respectively. NAV of the fund as on January 23, 2020 is 79.95. Expense ratio of the fund is 0.17%. Notably, the fund has over 89% investment in large cap stocks. In comparison Nifty 50 TRI has been 13.91% in a year, so the difference in return from the benchmark is low and hence a good fund.
2. SBI Nifty Index Fund: The fund commands a AMC size of Rs. 526 crore and is classified to be carrying "moderately high" risk. 1-year and 3-year return from the fund has been 13% and 13.8%. The fund's NAV as on January 23, 2020 is 104.72 in the growth category. Expense ratio of the fund is 0.69%. Fund has 98.92 % investment in Indian stocks, of which 88.06% is invested in large cap stocks.
3. LIC MF Index Fund Sensex: The fund size is Rs. 20.98 crore and expense ratio is 1.06%. As on January 23, 2020, 76.78 is the NAV of the fund. The fund's 1 year return is 14.87% whereas the benchmark's S&P BSE Sensex TRI has been 15.91%. In the 3-year timeframe, the fund has managed to deliver 15% return.
4. Nippon India Index Fund- Nifty Plan (growth): The fund size is Rs. 157.84 crore and is again said to carry moderately high risk. The fund's 1-year and 3-year return has been 12.74% and 13.5%, respectively. NAV of the fund as on January 23 is 20.38. In the previous quarter, the fund's crisil rank was changed to 3 from 1.
5. HDFC Index Fund- Nifty 50 plan: The scheme has 89% investment in large cap stocks and commands a fund size of Rs. 1046.5 crore. The fund's 1-year and 3-year return had been 13.4% and 14.43%, respectively. Expense ratio of the scheme is 0.3%.
The data has been gathered using money control. Mutual funds are subject to market risk.
Disclaimer The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.
About the author: Roshni Agarwal has been covering personal finance, equity for close to 5 years.