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Top Index Funds and ETFs to Invest in 2021

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By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals

---Warren Buffett

2020 has been a year of lots of ups and downs; both economically as well as emotionally for all of us. The moment our lives were hit by this severe pandemic ‘Covid-19,’ suddenly everything came to a standstill. Since then it's been a roller-coaster ride for everyone. Lakhs of people lost their livelihood, more than that millions of them have succumbed to the pandemic. 

Well, in less than a month, we are heading towards another era of our lives carrying hopes, and new possibilities. The one thing this pandemic has taught us is that nothing is certain and at the end, it’s our health which is the most important thing above everything else and nothing else matters. Let’s welcome the coming year with a new ray of a fresh beginning hoping to strive for a better tomorrow.

In this piece of article, we’ll take a sneak peek into the Top Index Funds in India and Exchange Traded Funds to invest in the coming year 2021.

Let's first talk about Index funds, what exactly is the difference between the two and what are their advantages.

What Are Index Funds?

Index funds are the funds in which you invest in Indices.

There are mainly two indices in India- Sensex and Nifty.

Sensex and Nifty

Sensex is a main index of BSE and Nifty is the main index of NFT. 30 companies are included in Sensex. Similarly Nifty 50 has 50 companies. Index funds simply invest in these indices.

For example, if you invest in the index of NiftSector-wise, invest fund will invest in the companies which are a part of Nifty.

If we talk about Sector-wise weightage, Nifty has 39.28% weightage of Financial Services, IT-Sector has 15.75 % weightage, Oil and Gas has 12.94 % and Consumer goods has 11.16%. In the same way, different sectors have different weightage.

If we see company wise, Nifty has 50 companies, and these 50 companies have different weighted percentages. Like HDFC has 11.21% weightage in Nifty, Reliance Industries has 11.17%, Infosys has 7.21%, and in the same way, all the companies which are a part of Nifty, all have different weighted percentages. So Nifty’s Index fund will invest in companies according to these percentages.

Like Nifty’s Index fund will invest it’s 11.21% in HDFC Bank, it will invest 11.17% in Reliance Industries because they have this much weightage in Nifty. Nifty’s and Nifty’s index performance will be the same.

For example if Nifty gives you a 12% return then it’s index will also give you a 12% return. In the same way, the index fund of Sensex will directly copy Sensex. 

Index Fund is called Passive Fund also because here the Fund Manager does not have to search for the companies actively. They only have to invest in indices according to their weightage percentage.

Difference Between Index Funds And Exchange Traded Funds (ETFs)

Exchange Traded Funds also work in the same way as the Index Funds. The only difference here is that you buy Mutual Funds from the Asset Management company. You can buy ETFs directly from the Stock Exchange also.

The second difference between Index funds and ETFs is that Index funds are very limited.

For example, top indices like Nifty and Sensex, you only get their Index funds. On the other hand, if we talk about ETFs, you can get lots of options in these. They also cover Junior nifty, bank nifty, Nifty BeES etc.

Index Funds and ETFs are best for people who don’t believe in the risk factor or if they want to invest in the long term.

Let’s now talk about ETFs.

What Are Exchange Traded Funds? 

In ETFs, you get a lot of flexibility. You can invest in a lot of Indices with the help of ETFs, where it’s a bit difficult to invest through index funds. You can directly invest in Nifty and Sensex through ETFs.

Also, you can invest in the top 100 stocks with the help of ETFs. Small cases of platforms also help in investing in the top 100 stocks. For the top 100 stocks, two ETFs are combined together.

They have combined Nippon India’s Nifty bees and ETF Junior bees. Nippon India ETF Nifty bees is a Nifty of ETF only which covers the top 50 companies.

Similarly, ETF Junior Bees covers the next top 50 companies. So in this way, the top 100 companies get covered here. Hence, if you are wondering which is the best ETF to invest in 2021, you can pick any of the aforementioned. 

indexfund

Index Funds And ETFs: Who Should Invest In Index Funds Or ETFs?

Let's now discuss Index Funds and ETFs are suitable for what kind of people.

If you are thinking of investing for the long term and do not believe in taking such risks, then the best option for you is ETF and Index Funds.

Similarly, if you don’t have much time for Active Investment, or you lack the expertise of how to pick stocks, then you might think of investing in Index Funds and ETFs.

All the top companies are involved in the Index and ETFs. Though they aren’t much risk, they will not promise to deliver you extra returns. If we talk about Sensex here, Sensex was started in 1986, and since then it has been delivering a compounded return of 13.86%.

Conclusion

There is no doubt about the fact that Sensex has been giving consistent returns persistently and Nifty too has delivered the same returns.

If you want to invest in Index funds, you invest through an Asset Management company (AMC) and you don’t need a Demat account, whereas if you want to invest in an ETF, then you need a Demat account.

If we talk about small cases, then we see that they have a tie-up with all the small-scale brokerage firms through which you will be able to invest in the top 100 stocks.

So, here is a brief summary of all the significant factors that you need to be careful about investing in Index Funds and ETFs in the coming year. Make sure you invest your money keeping all the necessary guidelines in mind and make the most of your savings.

In case, you think that your concept of investing isn't pretty clear, then we suggest you explore our stock market course for beginners. You will find the lectures explained quite well and easy to understand. So, don't stop yourself, check out our courses now!

Happy Investing :) 

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author

Madhulika