If you are looking at wealth creation, investing in the Stock Market is a good starting point. You can reap handsome returns if you stay invested in them in the long run. One of India’s leading benchmark indices is the Nifty 50, listed on the National Stock Exchange. This index represents a basket of 50 stocks of the largest companies by market capitalization.
Generally, traders use this index to gauge the Stock Market’s performance. What makes the Nifty an excellent indicator of the market’s behavior is that it covers companies across 14 different sectors. So, when investors put their funds into the Nifty 50 index, they gain exposure to a diverse range of companies. This helps to reduce your investment risk to a great extent. But how should you invest in this index?
You can invest in the Nifty in two ways: through a direct stock route and Mutual Funds or Exchange-Traded Funds. Let us delve deeper to understand these ways:
Direct Stock Investment
Investing directly in stocks based on the weightage in the Nifty 50 can be an expensive and complicated process. The biggest challenge is the amount you would need to pump in to buy all stocks in the Nifty index according to their actual weightage. You need to keep up with the weightage that changes daily constantly. This can be a cumbersome exercise.
A simpler method to invest in the index is to take the Mutual Fund route. This pools money from many investors, making it easier for you to invest a smaller amount in becoming an owner of all the 50 stocks in the same proportion as the index. The Nifty index fund is designed so that all the components linked to the fund match the companies in the index. Simply put, Nifty 50Index Funds replicate the Nifty 50 index.
You can also consider buying an Exchange Traded Fund (ETF) benchmarked to the index. ETFs differ from an Index Fund as the former is purchased or sold on the stock exchange only during trading hours. Investing in a single unit of an ETF linked to the Nifty index exposes all 50 shares on the index. The performance of such an ETF is simply the result of the performance of all shares in the Nifty 50 Index and the demand and supply in the market. There are no fund managers involved in this process.
Now that you better understand the different ways of investing in the Nifty index, it is also clear that this is your safe bet to accumulate significant wealth in the long run. Investing in the index is convenient and cost-effective if you opt for Mutual Funds or Exchange-Traded Funds. Furthermore, since Index Funds are passively managed, you only need to invest in them, sit back, and enjoy the returns.
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