Taking smart steps for your financial future is always a wise decision. It is important to invest your money wisely to get the most out of it. However, as a first-time investor, it can be challenging to pick the right stocks, time the market, and balance your portfolio with different sectors and market capitalizations. Moreover, the market can be unpredictable and volatile. So, what’s the solution? Rather than jumping into an active approach directly, a passive investing approach through index funds may be a wise start.
Index funds are a type of mutual fund that tracks a specific market index and aims to replicate the performance of that index. As a first time investor, index funds give you exposure to multiple stocks and companies without having to individually select and research each one. With benefits like easy investment and tracking, availability at a low-cost, and market linked returns, index funds help new investors to build their portfolio with minimal effort and risk.
But the advantages don’t end here. Here are more reasons why index funds are a must-have for first time investors.
- Manage investment risk through diversification
When you invest in index funds, you buy a basket of stocks representing companies from different sectors and industries which helps to diversify your portfolio. This approach acts as a safety net, as one or a few underperforming stocks will not cause much fluctuations in your overall returns. Moreover, by dividing out risk, you can reduce volatility in your portfolio and maintain consistent growth over time.
- Minimise investment research
Index mutual funds follow a passive investment strategy. You don’t need to spend hours researching individual stocks or monitor market conditions and market prices regularly.
The management team handles the portfolio that reflects the chosen market index and you can benefit from their expertise. Since the funds mirror the composition of a particular index (e.g., the Nifty 50), you can easily track their performance. This makes it an ideal investment option for beginners who want a low-maintenance and low-risk option.
- Low fees
As a first-time investor, one of the most important considerations is minimising expenses so that more of your money goes directly into investments and earns returns. Index funds offer just that.
Because passive investing doesn’t require active day-to-day trading or portfolio analysis and in-house stock analysis, these funds have low operating costs. Thus, your money flows directly into the underlying assets rather than being spent on fees and expenses. This gives first time investors an opportunity to maximise their profits and focus on long-term gains.
- Offers a disciplined approach to build long term wealth
Systematic investment plan or SIP facility in index funds offers a disciplined approach to investing which is extremely important for first time investors. SIP investments help to build a portfolio through small and regular contributions, helping investors who are just starting out or have limited capital. Moreover, with auto-pay options, these investments are also easy to manage and automated, so you never miss an opportunity to grow your funds, even in volatile markets.
How to buy index funds in India?
You can invest in index funds through a lump sum or SIP method. Both options are available through mutual funds investment apps and fund houses’ websites. The steps are:
- Visit the fund house website or open the app.
- Click on “Mutual funds”.
- Browse through the list of index funds and select the right fund. Fill in the required details like investment amount, tenure, etc.
- Click on “Invest”.
- Enter your PAN number (if asked).
- Provide your bank details and OTP to confirm the payment and buy index funds. Now you can track and manage your index funds online easily.
Ending notes
As a first-time investor, index funds should be on top of your investment list as they offer numerous benefits. These include low management fees, no bias investing, diversification through broad market exposure, and convenience through online platforms and apps.
Also, while investing is essential, it is equally important to seek expert guidance to invest wisely and grab emerging opportunities in different market conditions.
