​Index - Funds​

An index fund is a type of mutual fund designed to replicate the performance of a specific market index. It holds a portfolio of stocks, bonds or commodities that tracks an underlying index, thereby offering investors diversified exposure at a relatively lower cost*. Investors looking for a long-term, cost-effective investment approach that aligns with general market trends may find index funds suitable for their portfolio.

Index funds are passive mutual funds designed to track the performance of a specific market index. This approach aims to replicate the index’s overall performance (Total Returns Index), rather than trying to outperform it.

Since they are passively managed, these funds have comparatively lower management fees, giving you the potential to returns over time. They aim to reflect the overall market performance and offer potential for long-term growth.

When you invest in an index fund, your money is invested across the securities within the underlying index in the same proportion as the index. For example, if a particular security makes up 10% of the index, ~10% of your investment in the fund will be allocated to that security.

The primary goal of an index fund is to match the overall performance of the chosen index. There’s no frequent buying or selling of securities in an index fund, as the fund will make changes in the portfolio composition only when there is change in the constituent of the underlying index. This passive management style helps keep fund management costs low. Fund managers adjust the portfolio to ensure it accurately reflects the index during events such as rebalancing/reconstitution and corporate actions. This passive approach offers benefits in terms of lower expenses*, which may provide difference in returns over the long term.

These funds aims to avoids individual security picking or sudden shifts in management strategies, by simply replicating an index. While the portfolio may remain largely the same during the year, periodic rebalancing (Quarterly/Semi-annually) aims to align it with the index, helping investors stay in sync with the market. This hands-off approach tends appeal to investors who want to participate in the market's natural growth without the pressure of making frequent buying or selling decisions.

Investing in index funds is simple and convenient. Here’s how you can get started:

• 1.Create an account, either through our website or mobile app, to access our range of index funds.
• 2.Select between the Direct Plan, where you invest directly with the fund house or the Regular Plan, where investments are made via a distributor/intermediary.
• 3.Select an index fund that aligns with your investment goals, such as those tracking Nifty 50, BSE Sensex, or other popular indices.
• 4.Make a one-time lump sum investment or opt for a Systematic Investment Plan (SIP) for regular, automated contributions to your chosen fund.
• 5.Monitor your portfolio’s performance through our easy-to-use dashboard and stay informed about your investment’s growth.

You can benefit from investing in the index funds if you fall into any of the following categories:

1.Beginners

If you're new to investing, index funds tend to provide a convenient way to start.

2.Long-term Investors

Those looking to build potential wealth over time without constantly monitoring the market may find index funds a good fit.

3.Retirement Savers

Investors saving for retirement can may benefit from the long-term growth potential of index fund investments over several years.

4.Diversified Investors

Those who want to diversify their portfolio without handpicking individual securities can may use index funds to spread risk effectively. Index funds are also available in a range of strategy, sectors, themes & fixed income categories.

5.Diversified Investors

Index funds tend to be a good choice if you prefer a hands-off approach and don’t want to engage in active trading or market timing.

Index funds offer several advantages which make them a popular investment choice for Indian investors. These include:

Cost-Effective Diversification

While diversification is a common benefit across many types of mutual funds, index funds inherently diversify your investment by tracking a market index, thereby offering diversification at a cost lower* to active mutual funds.

Simplicity

With index funds, you don’t need to research individual securities or actively manage your investments. This hands-off approach may be suitable for investors looking for a simplified way to potentially grow wealth.

Accessibility

Index funds are easy to invest in, with a minimum investment threshold that most individuals can invest via index fund SIP ** or lumpsum.

No Fund Manager Bias

Index funds eliminate security selection bias. The fund tracks a market index, investing in the exact securities in the same proportions, which tend to eliminate the risk of human judgement errors.

1.Investment Horizon

Index funds can may be considered suitable for long-term investors. Since they track the market’s overall performance, they tend to provide potentialbetter returns over time. These funds may be a the suitable best fit if you’re planning to invest for the long term.

2.Fund Tracking the Right Index

Not all index funds track the same market index. For example, some funds track equity broad market indices like the Nifty 50 , some focus on specific sectors themes or strategies such as Momentum or Low Volatility, whereas others track debt or commodity indices. So, it’s important to choose an index fund that aligns with your investment goals.

3.Concentration Risk

Although index funds can offer market exposure, they may still result in concentration risk if an investor’s portfolio has become more inclined toward a few sectors/themes, thus leading to concentration risk.

4.Risk Tolerance

Index funds track the broader market, including a mix of sectors/themes/strategies. Understanding your risk tolerance can may help you select suitable index funds for your portfolio.

5.Tax Considerations

Index funds, like other equity funds, are subject to capital gains tax. Long-term capital gains (held for over 12 months) are taxed at 12.5%, while short-term gains (held for less than and upto 12 months) are taxed at 20%. This tax treatment can make index funds a viable option for investors looking to benefit from long-term market growth while being mindful of tax implications.