VMPL
New Delhi [India], November 27: To understand the market movements, investors study market indices such as the NIFTY 100, NIFTY 500, and other broad indices. These benchmarks help investors explore how their portfolios are performing in comparison to the wider market. There are many mutual funds and investment products that are also designed to track these well-known indices, making them important tools for beginners and experienced investors. By studying these indices, investors gets a clear understanding of market trends and sector behaviour. This article explains the meaning of Nifty 100 index funds, how they work, and a lot more.
Understanding the Nifty 100 Index Fund
The index fund monitors the Nifty 100 index performance. This index is made up of large-cap companies that are leaders in their respective industries. This index fund is passively managed. This means the investors aim for the fund to perform the same as the index rather than attempting to pick out top stocks and actively manage the fund. Investors considering options like the Axis Nifty 100 index fund can gain from this simple, transparent approach to long-term wealth building.
How Nifty 100 Index Fund Works?
Below is a guide on how Nifty 100 index fund works.
The Fund Tracks the Nifty 100 Index
Nifty 100 index has 100 large and mid-sized companies. The index fund simply follow this list and does not make its own stock choices.
The Fund Buys the Same 100 Stocks
Whatever companies are present in the Nifty 100, the fund also buys them. It keeps all 100 stocks so that the portfolio mirrors the index.
Capital is Invested in the Same Proportion
The index gives each company a weight based on its market size. The fund copies the same weight. For example: If Axis bank is 7% of the index then the fund invests 7% of its capital in Axis bank. This helps the fund match the index’s performance.
Automatic Adjustments When the Index Changes
Twice a year, the Nifty 100 Index is updated. Some companies may be added, and some may be removed. The index fund also updates its portfolio accordingly:
– It sells companies removed from the index
– It buys companies added to the index
This ensures the fund always stays identical to the index.
No Active Stock Picking
The fund manager does not try to outperform the market. There is no prediction, no guessing, and no active buying and selling. The fund’s only goal is to match the return of the Nifty 100 index as closely as possible.
Tracking Error is Kept Low
Sometimes a small difference appears between the fund return and index return. This is called tracking error. The fund manager tries to keep this difference as small as possible by:
– Rebalancing on time
– Managing cash efficiently
– Keeping costs low
Benefits of Investing in Nifty 100 Index Fund
The nifty 100 index funds offer several benefits, some of them are listed below:
– Diversification: Nifty 100 index fund majorly features sectors such as technology, finance, health care, and consumer goods. This diversification reduces the risk associated with investment in a single company or sector.
– Cost-Effective: Since it is passively managed, the costs involved in a Nifty 100 index fund are generally lower than those for actively managed funds. Lower fees mean more of your capital stays invested.
– Simplicity: Investment in a Nifty 100 index fund is simple. You do not have to search for individual stocks or monitor market trends. The fund does that for you by tracking the index.
– Long-term Growth: It is well known that equity markets are likely to go up in the long term. By investing in a Nifty 100 index fund, you position yourself to benefit from this growth.
– Accessibility: Most financial firms have made it easy to invest in a Nifty 100 index fund, which has conveniently facilitated novice and seasoned investors.
– Transparency: Index funds are transparent in their operations. Investors can easily track the performance of the Nifty 100 index and see how their fund is performing in comparison.
What to Consider Before Investing
While a Nifty 100 Index Fund offers several advantages, it is important to assess your financial goals and risk tolerance before investing. Equity markets can experience fluctuations, and your investment may face short-term volatility. A long-term perspective is essential for building stable growth through index funds. Investors who plan to invest regularly, especially through a reliable SIP app, should ensure that their contributions align with their overall financial objectives and comfort with market ups and downs.
Conclusion
A Nifty 100 index fund provides investors with a simple and disciplined way to participate in the performance of India’s top 100 companies. By replicating the index and maintaining low costs, it offers a transparent path to long-term wealth creation. The fund eliminates the need for active stock selection and allows investors to benefit from broad market growth over time. With consistent contributions, whether made directly or through a trusted SIP app, investors may build a diversified equity portfolio. For those seeking a straightforward and cost-effective entry into equity investing, a Nifty 100 index fund stands as a reliable choice for long-term financial planning.
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