What Is Index Funds | How to Invest in Index Fund (2024)

July 18, 2020 / By Om Patel / 5 minutes of reading

If you had invested ₹10,000 in the Nifty Index Fund in 1995 your investment would have been grown 10x to ₹ 1,00,000.

What Is Index Funds?

As the name suggests index funds are the mutual funds that invest in an index. Whatever you invest in index funds is directly invested in companies that are selected on that particular index.

If you invest in the Nifty index fund then you will get almost the same return as the Nifty.

Index funds are passive funds so expense ratio will be low.

To learn more about what is Index fund we need to know what is an index.

What Is Index?

An index is something that derives their value from selected companies.

For example, Nifty50 (commonly known as Nifty) gets its value from India’s top 50 companies.

It helps us to easily track the movement of the stock market.

Types of Indexes

Nifty50
Nifty100
Nifty Next50
Sensex
Bank Nifty
Nifty Alpha 50 And Many More.

Why Should We Invest in Index Funds?

Investing in index funds helps us to get exposer to top companies.
It also helps in the diversification of our portfolio.
Liquidity is also high in these funds. You can withdraw your investment anytime from index funds.
Fees are also low compared to other mutual funds.
If you are a beginner in the stock market and don’t know much about it then you should start by investing in index funds. It will lower your risk and gets a steady return.
No need to worry about stock research and company financials. Just invest and forget about it.

If you invest ₹10,000 every month for the next 30 years, you can get a return of more than ₹2 crores!*

Difference between Index Funds and Index ETFs

There are two main differences between index funds and index ETFs.

The expense ratio (read as charges) on index ETFs are lower than index mutual funds.
You need a Demat account to invest in index RTFs whereas you do not need any demat account to invest in index mutual funds.

There are so many index funds available in the market.

Here are some mutual funds you can checkout.

Index Fund Name	Expense Ratio	SIP (Minimum)	Lumpsum One Time Investment (Minimum)
UTI Nifty Index Fund – Direct Plan	0.10%	₹ 500	₹ 5000
ICICI Prudential Sensex Index Fund – Direct Plan	0.10%	₹ 100	₹ 5000
HDFC Index Sensex Direct Plan	0.10%	₹ 500	₹ 5000
HDFC Index Fund Nifty 50 Plan Direct	0.10%	₹ 500	₹ 5000

How to Invest in Index Funds

Investing in an index fund is the same as investing in a mutual fund. You can use any platform that allows you to invest in mutual funds.

You Just Need PAN Card to Start Investing in Index Fund.

I’m going to show you how to invest in index funds via 3 platforms.

How to Invest in Index Fund via Zerodha Coin App

Open Zerodha Coin App.
If you don’t have funds to your Zerodha account then go to the profile tab and add funds by taping on the manage button. Complete payment via UPI/IMPS/Netbanking.
Go to Discover Tab.
Write index fund in the search field or select index funds from the list of suggestions.
- .
Select the fund you want to invest in. In my case, I’m going to invest in the ICICI Prudential Sensex index fund.
If you want to invest only one time then tap on the buy button. If you want to start SIP(Systematic Investment Plan) then go to step 11 below.
You will get a screen like this to choose the amount you want to invest. Enter the amount and then tap on buy.
On the next screen, it will ask you to confirm your investment order. Tap on invest.
Voila. You will get a message indicating that your order is placed.
You can check your order status on the investment tab.
If you want to start SIP(invest every month automatically) then tap on the SIP button.
On the next screen enter the amount you want to invest per month. Also, choose the date and frequency(weekly, monthly, quarterly). Then tap on create sip button.
Then will get a confirmation popup. Tap on create.
And done… Your SIP is created.
To check your SIP status got to the investment tab and tap on sips.

How to Invest in Index Fund via Groww App

Open Groww App.
If you don’t have funds in Groww then do it by going to you tab and taping the add money button.
Then tap on explore tab. Tap on the searchbox at the top and search for the index fund.
Choose the one you want to invest in. I’m going to invest in the ICICI Prudential Sensex index fund. Tap on the one-time button.
Enter the amount you want to invest in this fund. Then tap on invest now.
And that’s it. Your investment is completed.

How to Invest in Index Fund via Paytm Money App

Open Paytm money app. Tap on the search icon on the top right corner.
Search for Index Fund.
Tap on the fund you would like to invest in.
You will get a screen with details regarding your fund. Tap on invest now.
Choose one option from SIP or Lumpsum. Enter the amount you want to invest. Tap on proceed.
Choose your payment method. Tap on proceed to payment.
That’s it. Your investment is completed.

Read: Stock Market Holidays

Conclusion

If you a working professional and want to invest in the stock market to grow your wealth and be part of the country’s development then an index fund is the best options for you.

The index fund is one of the safest options in the stock market. It is made up of top companies so the risk is very low.

Let me know in the comment section below if you need any help or have any questions. I am happy to help.

FAQs

What Is Index Funds | How to Invest in Index Fund? ›

Index funds invest in the same assets using the same weights as the target index, typically stocks or bonds. If you're interested in the stocks of an economic sector or the whole market, you can find indexes that aim to gain returns that closely match the benchmark index you want to track.

How do I invest in index funds? ›

If you'd like to invest in index funds, the first step is opening an investment account. It could be a retirement account, such as an Individual Retirement Account (IRA) or a nonretirement account, such as a regular brokerage account. If you're starting from scratch, research which broker you'd like to use.

View Details ›

What is the best index fund for beginners? ›

For beginners, the vast array of index funds options can be overwhelming. We recommend Vanguard S&P 500 ETF (VOO) (minimum investment: $1; expense Ratio: 0.03%); Invesco QQQ ETF (QQQ) (minimum investment: NA; expense Ratio: 0.2%); and SPDR Dow Jones Industrial Average ETF Trust (DIA).

Discover More Details ›

Is index fund good for beginners? ›

Index funds are a good choice for people who are new to investing or prefer lower-risk options. They provide exposure to the stock market without too much risk.

How do index funds pay you? ›

Most index funds pay dividends to their shareholders. Since the index fund tracks a specific index in the market (like the S&P 500), the index fund will also contain a proportionate amount of investments in stocks. For index funds that distribute dividends, many pay them out quarterly or annually.

View Details ›

Can I buy index funds on my own? ›

Go to your investing account or open a new one

These accounts give you the ability to purchase mutual funds or ETFs, and you may even be able to buy stocks and bonds later, if you choose to do so. If you don't have an account, you'll need to open one, which you can do in 15 minutes or less.

Should I just put my money in an index fund? ›

To be sure, if you have the time, knowledge, and desire to create a portfolio of individual stocks, by all means, go for it. But even if you do own individual stocks, index funds can form a solid base for your portfolio. Index funds offer investors of all skill levels a simple, successful way to invest.

Read On ›

What are 2 cons to investing in index funds? ›

The benefits of index investing include low cost, requires little financial knowledge, convenience, and provides diversification. Disadvantages include the lack of downside protection, no choice in index composition, and it cannot beat the market (by definition).

Find Out More ›

How much money do I need to start an index fund? ›

It depends on the broker you decide to invest with. Many index funds have an investment minimum between $1,000 and $3,000, but some brokerages offer index funds with low-to-no minimum investments.

Do index funds actually make money? ›

Individual stocks may rise and fall, but indexes tend to rise over time. With index funds, you won't get bull returns during a bear market. But you won't lose cash in a single investment that sinks as the market turns skyward, either. And the S&P 500 has posted an average annual return of nearly 10% since 1928.

Do billionaires invest in index funds? ›

If Warren Buffett could only make one investment, he said it would be an S&P 500 index fund. He particularly favors Vanguard funds, and his company, Berkshire Hathaway, owns the Vanguard S&P 500 ETF (NYSEMKT: VOO).

Get More Info ›

What to do before investing in index funds? ›

Before investing in any mutual fund, you should consider your investment objective and investment strategy basis the following points:

Your financial goal.
Your investment time horizon.
Your risk tolerance.
Your return expectation.

View Details ›

Do you pay taxes on index funds? ›

Index mutual funds & ETFs

Constant buying and selling by active fund managers tends to produce taxable gains—and in many cases, short-term gains that are taxed at a higher rate.

View Details ›

How do I put money in an index fund? ›

You can buy index funds through your brokerage account or directly from an index-fund provider, such as Fidelity. When you buy an index fund, you get a diversified selection of securities in one easy, low-cost investment.

See Details ›

Can you withdraw money from index fund? ›

There are hundreds of funds, tracking many sectors of the market and assets including bonds and commodities, in addition to stocks. Index funds have no contribution limits, withdrawal restrictions or requirements to withdraw funds.

See Details ›

How to buy s&p 500 index fund? ›

Since the S&P 500 is simply a measure of its underlying stocks' performance, you can't invest in it directly—instead, you can buy S&P 500 index funds through either a mutual fund or ETF that strives to match the performance of the S&P 500 market index.

Get More Info Here ›

Is the S&P 500 an index fund? ›

The S&P 500 is an index, so it can't be traded directly. Those who want to invest in the companies that comprise the S&P must invest in a mutual fund or exchange-traded fund (ETF) that tracks the index, such as the Vanguard 500 ETF (VOO).

View Details ›

How much of my income should I invest in index funds? ›

Some experts recommend at least 15% of your income. Setting clear investment goals can help you determine if you're investing the right amount.

Discover More Details ›

Do you need a broker to buy index funds? ›

You can buy index funds through your brokerage account or directly from an index-fund provider, such as Fidelity. When you buy an index fund, you get a diversified selection of securities in one easy, low-cost investment.

Explore More ›