Nifty is an Indian stock index whose name is a combination of two words, “National Stock Exchange” and “Fifty”. There’s a high chance that whenever someone says Nifty, they mean Nifty 50.
Nifty 50 is one of the most popular stock indices in India. It represents the weighted average of the top 50 companies listed on the NSE like Reliance Industries, TCS, Infosys, HDFC Bank, and others.
However, there are several variations of the Nifty index that you may come across, like Nifty Bank that includes popular bank stocks like SBI and ICICI Bank or Nifty Energy that includes the likes of Tata Power.
Investing in all 50 stocks present in the Nifty index can be a cumbersome task. Luckily, there are mutual funds that allow you to gain exposure to every stock on the Nifty index in one place. They’re known as index funds.
What Is An Index Fund?
An index fund is an equity fund that mirrors a stock index like Nifty 50 or S&P 500. “Mirrors” means that it includes all the stocks that are present in the index it is named after, carrying more or less the same weightage.
Furthermore, index funds are generally classified as passive funds. This simply means that there’s no active involvement of a fund manager in the everyday buying and selling process.
That’s why the expense ratio tends to be relatively lower for index funds than their actively managed counterparts. Let’s dig deeper into Nifty index funds now that you know the basic workings of an index fund.
What Is A Nifty 50 Index Fund?
A Nifty 50 Index Fund is an equity mutual fund that’ll track and include the top 50 large-cap stocks in India, which are a part of the index that it is named after.
In principle, the Nifty 50 Index Fund looks to grow with the index (market) it is tracking just like any other index fund. This is primarily why the chances of an index fund outperforming the market are slim.
That said, the Nifty 50 index has gained more than 9,700 points or 117% over the past 5 years, making it a potentially suitable option for investors with a low to moderate risk profile.
Historical returns of index funds can range from 10% to 12% for the long term. Moreover, there are as many as 15 Indian mutual fund houses that have a variation of the Nifty 50 Index Fund on the market as per the NSE. You can consult a Cube Wealth coach or download a Cube wealth app.
What Makes Nifty 50 Index Funds Special?
The Nifty 50 index hosts 50 of the biggest companies in India and the world like Reliance Industries, which has a bigger market cap than companies like McDonald’s, Morgan Stanley, Starbucks, and others.
Furthermore, Nifty’s classification of stocks includes two important aspects:
- Float-adjusted
- Market-cap-weighted
Float-adjusted means that the index does not take into account the shares held by other companies or government entities. It’s simply an account of the shares available to and held by public investors.
Many consider the market cap to be a true reflection of a stock, which is one of the criteria that Nifty uses to classify stocks. Market-cap-weighted means that companies with a bigger market cap get a higher weightage.
That’s not all. Nifty 50, in particular, has gone from 890.08 in January 1999 to 18,045.35 in November 2021, which is a growth of 1,925.75%. Others like Nifty Energy have zoomed by 15,326.50 points since inception.
These factors add a layer of trust and confidence to the outlook towards the Nifty index, and by association, Nifty Index Funds. But wait, there’s more. The Nifty index is quite popular around the world.
In fact, there are international fund houses like Nomura Asset Management from Japan and DWS Group (DWS) from Luxembourg that offer a Nifty 50 Index Fund variation to their domestic investors.
How To Invest In Nifty 50 Index Funds?
There are 3 ways to invest in a Nifty 50 Index Fund. #1 and #2 are completely online while #3 is offline. You can choose either way based on your convenience.
#1. Investment Apps
Apps like Cube allow you to invest in Nifty index funds with a few clicks. This method is comfortable since you won’t have to step out of your house to go through the flow.
The process is fairly straightforward. You can download the app to know more.
Moreover, there are other advantages to investing in Nifty Index Funds using investment apps. You can track the fund in one place and start with low minimums. You can consult a Cube Wealth coach or download a Cube wealth app.
#2. AMC Website
Mutual fund houses have their own website where you can buy a Nifty Index Fund directly. This generally means that the cost of investing will be relatively low since you’re buying from the AMC directly.
The process will be more or less similar to #1.
- Visit website
- Complete KYC
- Wait for BSE StAR registration (for new investors)
- Select Nifty Index Fund
- Start investing
#3. AMC Branch
There are physical locations of AMCs that you can visit to start investing in a Nifty 50 Index Fund. The process can be relatively tiring as you’ll have to travel to a branch of the AMC whose fund you want to invest in.
- Travel to branch
- Get & fill-in form
- Complete KYC formalities
- Wait for BSE StAR registration (for new investors)
- Select Nifty Index Fund
- Transfer money
- Start investing
You can read more about index funds here.
FAQs
1. How can I invest in a Nifty 50 Index Fund?
Ans. You can invest in a Nifty 50 Index Fund by opening an investment account with a brokerage or financial institution that offers these funds. Then, you can buy units or shares of the fund.
2. What are the advantages of investing in a Nifty 50 Index Fund?
Ans. Investing in a Nifty 50 Index Fund provides diversification across 50 leading Indian companies, low expense ratios, and an opportunity to participate in India's equity market without the need to pick individual stocks.
3. Are Nifty 50 Index Funds passive investments?
Ans. Yes, Nifty 50 Index Funds are passive investments. They aim to replicate the Nifty 50 index's performance, and their holdings typically mirror the index constituents.
4. Can non-resident Indians (NRIs) invest in Nifty 50 Index Funds?
Ans. Yes, NRIs are generally allowed to invest in Indian mutual funds, including Nifty 50 Index Funds, subject to specific regulations. You can consult a Cube Wealth coach or download a Cube wealth app.
Note: Facts & figures are true as of 09-11-2021. The funds mentioned are suggestions based on funds handpicked by Cube's expert Mutual Fund Advisory partner. Before investing please take Cube's Portfolio Planner feature to ensure the funds you see are right for your goals, life stage, risk level and finances. None of the information shared here is to be construed as investment advice.
