Do you believe in the power of passive investing? If there’s one trend that has stood the test of time, it’s investing in index funds. This simple fund category mirrors the market and quietly compounds your wealth over time.
However, the Indian market has been evolving. Now, you have newer products like smart-beta and thematic ETFs. Many investors have a common question: Are index funds still an essential part of passive portfolios?
That’s exactly what we have discussed in this blog.
The Role of Index Funds in Passive Investing
The very concept of passive investing through an index fund is simple. You don’t try to beat the market, but seamlessly ride the growth trajectory of the economy. Index funds mirror the performance of a specific benchmark index. Accordingly, you can choose from various fund categories like Nifty 50 index funds, Sensex funds, etc.
The best thing about an index fund is that it eliminates the bias of a fund manager. It keeps your costs low and helps you gain exposure to the overall performance of the market. Compared to many active stocks, this strategy has proven more effective in the long run.
For instance, some of the best index funds have delivered an average return of 10% to 14% over the last 10 years.
Advantages of Index Funds in the Market
Apart from involving low costs, index funds appeal to investors with their simplicity, diversification, and accessibility.
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Low Costs
The concept behind index funds minimises expenses. They automatically track an index and don’t need a fund manager to actively pick stocks. This brings down the expense ratios, which can be as low as 0.1%. With lower costs, you can keep more returns and boost them through compounding over time.
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Simplicity
The beauty of index funds lies in the fact that your investment doesn’t require any complex research or active rebalancing. You just put your funds in the right scheme and let the market work for you.
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Diversification
Each category of index fund helps you gain instant exposure to multiple sectors. For instance, you can choose the Nifty Large Cap Index, the Nifty Mid Cap 100, the Nifty Small Cap 250, and other options.
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Accessibility
You can get started with investing in Nifty funds with as low as INR 100. Index funds are, therefore, accessible to everyone.
Why Investing in Index Funds Still Makes Sense
Even at a time when thematic funds and ETFs are gaining popularity, index funds continue to be the foundation of passive portfolios. It’s because of their core promise – the returns match the performance of the market, and you incur minimal cost and effort.
When you evaluate the long-term performance, you’ll find how exceptionally well they perform. Apart from compounding, you benefit from rupee-cost averaging. With disciplined wealth creation, there’s no worry about short-term volatility.
Conclusion
If you’re wondering if index funds must still be a core part of your passive portfolio, it’s an absolute ‘yes’. At a time when the market is volatile and you have lots of active funds, index mutual funds continue to be the simplest and most effective strategy to grow your wealth.
As an investor, you may choose to go with Nifty 50 funds or broader benchmarks like the Nifty Next 50. Staying passive and disciplined will help you develop your financial resilience in the long run. When it comes to investing, consistency often beats complexity.
