Why and How to Gain Exposure to Nifty?

Why and How to Gain Exposure to Nifty?

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The Nifty is among the broad-market benchmark indices of India. It tracks the price movements of the 50 biggest companies under the list of the National Stock Exchange. Traders widely use it to measure the performance of the entire stock market since it covers companies across 14 varied sectors.

So, people investing their capital in the Nifty can expose themselves to diverse companies all at once. This can help lower their investment risks considerably. Plus high returns can be expected. If one aspires to become a “crorepati” (millionaire) thus, he/she can use a crorepati calculator to determine the monthly investment required to be a crorepati in future.

However, the question is: how invest in Nifty? As it’s an index, you can’t buy it directly like a company’s stock. But you can use it to profit off its price movements in other ways. Investing via mutual fund services is one of them. Here’s a look.

Benefits of Investing in Nifty through Mutual Funds

The portfolio of mutual funds, such as index funds is the same as that of stocks featured in the Nifty. Therefore, these funds can effectively track the index’s performance so that investors can participate in its process of value creation. These funds, unlike other mutual funds, have higher odds of offering good returns and better diversification and are more cost-effective. By investing in all the 50 components of the index, you can gain greater market exposure.

Just use the online crorepati calculator to understand the amount of investment appropriate to become a future millionaire.

How to Invest?

You can invest in a Nifty index fund through the website or app of an asset management company after completing the KYC procedure. The investment can be a lump sum or in a small fixed amount at regular intervals through a SIP. The latter is a better option for automated disciplined regular investments and to grow returns through compounding.

However, before investing in Nifty index funds, consider the following factors :

  • Investment objective: The primary aim of index funds is to match the market’s performance. So, they aren’t right for investors looking for market-beating returns. So, it’s important to identify your financial goal before investing in a Nifty fund.
  • Tracking error: It’s the difference between the returns delivered by an index fund and the benchmark index. So, this metric tells you how well the fund could manage to track the price movements of the underlying benchmark.
  • Expense ratio: It’s an annual charge levied by asset management companies to cover the costs of services for running mutual funds. These expenses include advertising costs, management fees, etc. This annual fee directly influences the net annual returns you earn. So, it’s necessary to consider this fee before you begin to invest.

Make sure you know what is NAV before starting your investments. The net asset value (NAV) of an investment company tells you the price per unit of your chosen fund by deducting the company’s total liabilities from its total assets. Then choose between lumpsum and SIP mode of investment as it suits you best.

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