Index funds are considered to be safe forms of investment as these replicate the movement of overall market indexes like Sensex, nifty 50, and Bank nifty. Index funds deliver better returns compared to traditional fixed deposits with an average return of 8 to 10%. Moreover, these funds involved investment in secure and large-cap stocks which offer cost-effective and safe returns for a long period. Investors use an SIP calculator online to identify the best SIP amount as well as the average returns that an index fund can deliver. However, the selection of the best index fund required an understanding of obvious aspects:
1. Risk Tolerance
Investors who are risk averse can opt for nifty 50 or Sensex index fund which can offer better than average returns with less risk. On the other hand, investors who can bear some brisk can opt for bank, reality, and even IT index funds which can deliver better returns compared to traditional index funds. These include the ICICI Prudential IT index fund, SBI technology opportunities fund, HDFC housing opportunities fund, etc.
2. Liquidity
Investors looking for the best index funds must analyse the NAV value and the underlying stocks. Liquidity is another important factor that must considered before selecting an index fund. Better liquidity and the inclusion of stable Large-cap stocks can help investors in the fast and hassle-free sale of mutual fund units. Therefore, investors who actively buy or sell units in mutual funds should opt for liquid index funds like HDFC liquid fund or ICICI Prudential liquid fund.
3. Expense ratio
Every mutual fund is characterized by an expense ratio which involves payment of a certain portion of the total invested amount as a fee to the mutual fund managers. Investors must therefore analyse the expense ratio of different index funds and carefully select the best among them. The expense ratio of index funds is generally low. Comparison of the overall returns as well as the expense ratio of different mutual funds can help investors make the right decision.
4. Average returns
The overall performance and returns of an index fund must be compared for hassle-free selection. An online SIP calculator can help investors identify the best index mutual fund which can have substantial returns at a lower expense ratio.
5. Analysis of stocks and fund holdings
The most important aspect of selecting an index mutual fund is to analyse the underlying stocks and total fund holdings. Investors must look for index funds that generally invest in large and mid-cap funds that can offer stable returns. Moreover, the index funds with diversification must be given preference over the others. Investors must review whether or not a particular index tracks the underlying index in a streamlined or correct manner.
Careful selection of the best index mutual funds India based on performance, underlying stocks, expense ratios, and various other aspects can help in generating better returns. Investors must first identify an appropriate investment strategy and align it with the best index fund in India for maximum return.
Meet Suhas Harshe, a financial advisor committed to assisting people and businesses in confidently understanding and managing the complexities of the financial world. Suhas has shared his knowledge on various topics like business, investment strategies, optimizing taxes, and promoting financial well-being through articles in InvestmentDose.com
