If you have to cross the river and you do not know how to swim, then what happened .. You sit in a boat and go away. Just like a boat, a mutual fund also helps those investors who have limited knowledge of capital markets to reach their destination. Mutual funds are managed by professionals and they do research and create a portfolio of the right shares. To evaluate the performance of a mutual fund, it is compared to an index and the performance of that index is considered as a benchmark. Mutual funds whose portfolio is decided by the fund manager are called active funds. There is always an effort of the fund manager to bring maximum returns to the investors, but sometimes this is not possible because there is an emotional attitude in the choice of shares. Now if you want your scheme to perform the same way as the index that the scheme is tracking, then the method is to invest in an index fund. An index fund is a type of mutual fund, but the shares in its portfolio are not decided by the fund manager, but rather copy the portfolio of the index on which the fund is based. That is, an index fund is a completely passive or passive fund.
What is Nifty 50 Equal Weight Index
Nifty 50 Equal Weight Index is an index of NSE which is made up of a combination of 50 giants. These companies are derived from all the main sectors. The Nifty 50 Equal Weight Index holds shares of the same 50 companies that are on the NSE’s flagship index Nifty 50, but the special feature of the Equal Weight Index is that all companies have the same share in it. The disadvantage of a company being very low in the index is that even if the performance of that company is good, the index is not able to get its full benefit due to its low shareholding. Any team wins only when the responsibility is on the shoulders of all the players. If you take a look at the past performance, it can be seen that the performance of the Nifty 50 Equal Weight Index has been better than the Nifty 50. Be it the recovery of 2002–2003 after the dotcom crash of 2001–2002, the recovery of 2009 after the 2008 Global Financial Crises, or the recovery in the stock market in 2020–2021 due to Corona Pandemic. In each case, the performance of the Nifty Equal Weight Index has been better than the Nifty 50. That is, when there is a sharp decline in the stock market or after that fall, the Nifty 50 Equal Weight Index in recovery has proved to be better than the Nifty 50 Index.
Benefits of investing in index funds
Indexes are prepared in a highly scientific manner based on research. In particular, if you talk about the Nifty 50 Equal Weight Index, then it is a diversified index, that is, there is diversity in the stocks of this index. Hence the risk is reduced. Its portfolio is restructured once every 6 months and re-balancing occurs every three months. Because each company has to hold 2 percent of the share in this index, if its share increases to less than 2 percent or more due to the special performance of a company, it is reduced. In this way, profit booking is also done. Low turn over and low expense ratios are characteristic of any index fund. Through the Nifty 50 Equal Weight Index, you can invest in 50 companies simultaneously for a limited amount, whereas if you want to buy each of the shares that are in the Nifty 50 itself, then you have to invest around Rs 1.50 lakh. Recently, Aditya Birla Sun Life Mutual Fund has launched a similar fund based on the Nifty 50 Equal Weight Index in which investment can be started with a minimum of 500 rupees. You can invest in this fund through a lump sum or SIP, but according to me, at a time when the stock market is at its highest level, investing through SIP or STP can prove to be beneficial. Also, like any equity fund, this fund should be invested from the perspective of five years or more.
The author of this article is Pankaj Mathpal Certified Financial Planner and CEO of Optima Money Managers. & nbsp;