Hey Guys I know I can probably look it up online. But I was looking forward to seeking your opinion on how can I start investing in a low cost index . I have recently graduated and have some money I would like to passively invest.
What type of index would be most suitable? The top 100 or the Nifty 50? And who provides the cheapest service.
Thanks in Advance and hope some seniors will be kind enough to guide me.
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NPS is good. You can even get some tax savings.
There are many Index Funds\ETF. Chose any one fund representing an index which you want to invest
Some examples are:
Nifty 50.
Nifty 100
Nifty Next 50.
Sensex 30
Nifty Junior.
Index funds is a good way to replicate performance of an index. They have low expense ratios and are not managed by an active fund manager. Take a look at the link below for a list of index funds
https://www.nseindia.com/products/content/equities/indices/index_funds.htm
Key number to look for is tracking error. This is the amount by whihc an index fund’s performance deviates from underlying index. It should be low, typically less than 0.5%. Another number to look for is liquidity in case of ETF.
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Do you want to invest for gaining some experience or returns. If you want to gain experience, you should be able to remain calm when the index falls, this fall could be less or more depending upon the index you choose. Nifty next 50 is a volatile index compared to Nifty 50. Nifty next 50 fell 3% today, Nifty 50 fell 0.5%. And then there are Strategic and Smart Beta indices like Nifty quality 30, Nifty low volatility 30, Nifty 50 value 20 etc.
Depending upon what you are seeking, you can pick one. And maybe you can use a discount broker to buy the ETFs. ETFs have low cost and also have low tracking error, but do check the liquidity of the ETF before investing.
https://www.nseindia.com/products/content/equities/etfs/equity.htm
https://www.nseindia.com/products/content/equities/equities/eq_security.htm
If you want to invest in an index fund, the expense ratio will increase compared to the ETF. Also, the fund may get merged with some other index fund (it happened to a mid-cap fund) or the fund may even get closed if the AUM is low and the remote possibility of investors taking out their money which will lead to the NAV fall.
There are both advantages and disadvantages to both ETFs and index funds, so choose accordingly.
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