Today we will talk about my top 5 index funds which I am investing for Long Term. These index funds will cater my future financial goals like Children Education, Retirement etc.
What are Index Funds
Index funds are defined as investments that actually mirrors the performance of benchmarks like Nifty 50, Sensex 500 etc. In simple words a simple index funds is a portfolio of stocks or bonds designed to actually mimic the performace of benchmarks. The most common example is Nifty 50 Index Funds which mimic the performace of Nifty. Index funds is also known as passive investing, because in this type of investing you actually don't have to manage your portfolio actively.
How to Invest in Index Funds
You can invest in Index Funds using Mutual Funds or ETF (Exchange Traded Funds).
Are Index Funds Good Investment
Index funds are actually one of the popular way of investing for long term because it offers simple yet effective way to gain exposure to a broad, diversified portfolio at a relatively lower cost. Since Index funds are passive investments, they have lower expense ratio (Expense ratio is the annual maintanance charge levied by Mutual Funds). More than 90% of the active funds are unable to outperform the index funds over a longer period say 10 years. So if your investment horizon is more than 10 years then I would suggest you to invest in Index Funds. This is not a financial advice, do consult with your financial advisor for more information.
So since we know that most of the active funds cannot beat the index in the longer run, so why complicate investing. We can actually create a portfolio with just 5 index funds for our long term investing. So let's go through the top 5 Index funds for long term.
Number 1: Nifty 50 Index Fund
It invests in the 50 largest companies listed on the National Stock Exchange commonly known as NSE. It actually gives you a broad market exposure and the expense ratio is quite low. You can invest in the Nifty 50 Index Fund via Mutual Funds or via ETF. I have been investing in Nifty 50 Index fund via Mutual Fund and the fund is Navi Nifty 50 Index Fund Direct Growth whose expense ratio is just 0.06 and the exit load is nil. If you are investing via ETF, try to invest in the ETF which has higher volume like NIFTYBEES or NIFTYIETF. If I take 25 years data then Nifty 50 has given around 14.8% returns.
Number 2: Nifty Next 50 Index Fund
It invests in the next 50 largest companies after the Nifty 50 which gives stability as these are big comapnies whereas it also gives advantage of growth potential. In my case I have been investing in this Index fund via Mutual Fund and the fund is ICICI Prudential Nifty Next 50 Index Direct Growth whose expense ratio is just 0.31%. If you are investing via ETF, try to invest in the ETF which has higher volume like NEXT50IETF or UTINEXT50. If I take 20 years data, then Nifty Next 50 has given around 26.4% returns. This gives little higher returns then Nifty 50, but it is little more riskier then the Nifty 50.
Number 3: Nifty Midcap 150 Index Fund
This index includes the 150 largest companies i India that fall under midcap categories that means they are mid-sized companies but still have high growth potential. I have been investing in this Index fund via ETF and I am investing in MIDCAPIETF which has a good volume. Again it is little riskier than Nifty 50 and Nifty Next 50 but have a high gowth potential. It has given 26.21% returns since inception.
Number 4: Nifty 500 Index Fund
This index fund represents top 500 companies listed in National Stock Market in terms of Market Capitalization. It includes large companies as well as small companies which gives you a mixture of stocks. There will be some overlapping of stocks between this fund and the previous 3 index funds as it's a borad based index that includes large cap, mid cap and small cap. It actually provides the diversification you need in your portfolio across sectors and market capitalizations. I have been investing in this index fund using mutual fund Motilal Oswal Nifty 500 Index Fund Direct Growth, you can also invest in it via ETF MONIFTY500. It has given around 21.77% returns in last 5 years.
Number 5: S&P 500 Index Fund
This index invests in the most widely recognized benchmarks of the U.S. stock market. It includes the top 500 of the largest publicly traded companies in the United States. Since it invests in top 500, it actually gives us the advantage of the braoder market in US. I have been investing it via Mutual Fund Motilal Oswal S&P 500 Index Fund Direct Growth. You can also invest it via ETF, HDFCBSE500. The only problem with these funds is that there is little higher volatility as there is some restriction by RBI. It has given over 11.1% returns in last 20 years.
These are the top 5 index funds in my portfolio, which I have been investing for the long term. Before starting the investing, I would recommend you to have an emergency fund, you can check the video in the description for the same. Let me know if you are investing in any of the index funds I talked aboyt or any other index funds which are equally good for the long term.
