Invest in Index Funds in India? Here’s How to Do It

Diversification is a key element of a profitable investment portfolio. Among the many asset classes that investors attempt to diversify their holdings include gold, real estate, debt, and equity.

They strive for even greater diversification within each asset class to lower risks. One well-known method for reducing risks in equity investing is to diversify your equity portfolio by buying shares of companies with different market capitalizations and industries.

In this case, index funds are relevant.

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What is Index Fund?

As the name suggests, an index mutual fund invests in stocks that replicate stock market indices such as the BSE Sensex, NSE Nifty, etc.

Because these funds are passively managed, the manager makes the same proportional investments in the same securities that are included in the underlying index rather than changing the composition of the portfolio.

The goal of these funds is to offer returns that are on par with the index they track.

Index Funds: How Do They Work?

Assume that an index fund is tracking the NSE Nifty Index. As a result, the portfolio of this fund will contain 50 stocks in comparable amounts.

Bonds and equity-related instruments may be included in an index. The Index Fund makes certain that it invests in every security the index follows.

An index fund, which is passively managed, aims to match the returns provided by the underlying index, while an actively managed mutual fund seeks to outperform its benchmark.

Here is How to Invest in Index Funds in India

For index fund investing in India, there are two ways - the online and offline methods of investing in index funds. Explaining it here:   

• Online Process

  1. Choose a safe website and create a mutual fund account

  2. Complete your KYC processes and proceed to the next step

  3. Enter your relevant data as required

  4. Based on your financial goals, select the fund or funds you wish to invest in

  5. Make the necessary transfer after selecting the relevant fund

  6. If you plan to have monthly investments via systematic investment plan (SIP), you can also establish a standing order with your bank

• Offline Process

  1. Read the document and carefully and completely fill out the application and KYC forms

  2. Submit the application and KYC form

  3. Include and input the relevant data as required.

  4. As per your financial need, select the fund or funds you want

  5. Select the convenient payment method to pay the investment amount

  6. If you want to invest every month through SIP then set up a BillPay, eMandate, eNACH, ADF (Auto Debit Form), or OTM (One Time Mandate) online or offline